IDS Property Casualty Insurance Company v. Lu et al

Filing 29

ORDER granting in part and denying in part 22 Motion to Dismiss for Failure to State a Claim. Signed by District Judge Terrence W. Boyle on 4/15/2016. Counsel is reminded to read the order in its entirety for important information. (Romine, L.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
NO. 5:15-CV-561-BO

IDS PROPERTY CASUALTY INSURANCE
COMPANY,
Plaintiff,

v.
MIN LU, YING YING YANG, and
CITIMORTGAGE, INC.,
Defendants.

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ORDER

This cause comes before the Court on plaintiff/counterclaim defendant IDS Property
Casualty Insurance Company's (hereinafter "plaintiff'' or "IDS") motion to dismiss three
counterclaims brought by defendants/counterclaim plaintiffs Min Lu and Ying Ying Yang
(hereinafter "defendants"). Defendants have responded, and the matter is ripe for ruling. For the
reasons discussed below, plaintiffs motion to dismiss three counterclaims is GRANTED IN
PART AND DENIED IN PART. [DE 22].
BACKGROUND
This is a declaratory judgment action that arose from an insurance dispute. Defendants
lived together at 103 Partheni Court in Cary, North Carolina. Defendants had a homeowners
insurance policy from plaintiff. Defendants left their home on December 25, 2013, for a trip out
ofthe country; their anticipated return date was January 21, 2014. Before they left, defendants
turned off the residence's central heating and did not shut offthe water supply or drain all water
systems in the residence. On January 12, 2014, via webcam, defendants discovered that there
was water damage in the residence.

Defendants then contacted IDS to make a claim against their homeowners insurance
policy. A representative from IDS told defendants that IDS could not commit to coverage
without further investigation. The representative also told defendants that it would dispatch a
mitigation company within a day. IDS contacted a company called Disaster Response to evaluate
the condition of defendants' home. The next day, Disaster Response sent defendant Min Lu a
Work Authorization and Direct Payment Contract for Mitigation, Emergency Services, and Mold
Remediation, which Lu signed.
Plaintiff claims that IDS representatives then had several conversations with defendants
advising them that the loss might not be covered if it was due to a frozen pipe resulting from
defendants' failure to keep the heat on in the residence. Plaintiff also claims a company called
American Leak Detection determined that the water came from a burst pipe caused by belowfreezing temperatures in the home's attic. Defendants deny these statements and contend they did
properly maintain heat and insulation in the home. [DE 17]. However, both parties agree that
IDS determined the damage was caused by a frozen pipe that resulted from defendants turning
off the heat but leaving the water on in the residence. As IDS contends that the language of
defendants' policy did not require covering these circumstances, IDS denied coverage.
Defendants claim they are entitled to recover in excess of $75,000.00 pursuant to their
homeowners insurance policy. IDS contends that defendants are not entitled to recover. Thus,
IDS filed the instant suit for declaratory judgment stating that IDS does not owe defendants for
the losses at issue, as they are not covered by defendants' homeowners insurance policy.
Defendants answered and brought four counterclaims against IDS: (1) breach of contract; (2) bad
faith, unfair claim settlement practices, and unfair and deceptive trade practices; (3) constructive

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fraud; and (4) negligence. In response, IDS filed the instant motion to dismiss counterclaims two
through four.
DISCUSSION
Plaintiff moves to dismiss defendants' second, third, and fourth counterclaims pursuant to
Federal Rules of Civil Procedure 9(b) and 12(b)( 6).

I.

Defendants' Second Counterclaim-Bad Faith/Unfair Claim Settlement
Practices/Unfair and Deceptive Trade Practices
Plaintiff moves to dismiss defendants' counterclaim alleging bad faith, unfair claim

settlement practices, and unfair and deceptive trade practices for failure to plead with specificity
under Rule 9(b)' s heightened pleading standard.
Federal Rule of Civil Procedure 9(b) imposes a heightened pleading standard for fraud or
mistake, requiring a party to "state with particularity the circumstances constituting fraud or
mistake," but allowing state of mind to be pled generally. Fed R. Civ. P. 9(b). However, while
claims of fraud or mistake do have a heightened pleading standard, "[a] court should hesitate to
dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made
aware of the particular circumstances for which she will have to prepare a defense at trial, and
(2) that plaintiff has substantial prediscovery evidence of those facts." United States ex ret.

Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999).
Here, the Court finds that defendants have stated a claim upon which relief can be
granted under Rule 9(b). Though defendants' claim would benefit from more factual support as
the litigation develops, they have included sufficient information to make plaintiff"aware ofthe
particular circumstances for which [it] will have to prepare a defense at trial," and they have
demonstrated that they have sufficient prediscovery evidence to support their claims. Harrison,
176 F.3d at 784. Defendants chiefly claim that they were deceived by plaintiff in that plaintiff
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collected defendants' monthly insurance payments but never told defendants that they would
only be able to recover for the type of claim at issue if their heating was on at the time of the
incident. The homeowners insurance policy at issue has been submitted to the Court along with
references to multiple conversations with plaintiff concerning the water damage and the proper
course of action. From the allegations contained in defendants' pleadings, as summarized above,
plaintiff is sufficiently on notice of the deception that will be alleged at trial. As defendants'
claim has satisfied the heightened pleading standard of Rule 9(b), a motion under Rule 12(b)(6)
would also fail. Therefore, plaintiffs motion to dismiss this counterclaim is denied.
II.

Third Counterclaim-Constructive Fraud
Defendants' third counterclaim alleges constructive fraud. Plaintiff has moved to dismiss

under Rules 9(b) and 12(b)(6). As there is no need to engage in the heightened pleading standard
analysis of Rule 9(b) if the claim fails under Rule 12(b)(6), the Court will conduct the Rule
12(b)(6) analysis first.
Federal Rule of Civil Procedure 12(b)(6) permits dismissal of a matter if it fails "to state
a claim upon which relief can be granted." See Fed. R. Civ. P. 12(b)(6). A Rule 12(b)(6) motion
to dismiss challenges the legal sufficiency of a plaintiffs complaint. Francis v. Giacomelli, 588
F.3d 186, 192 (4th Cir. 2009). When acting on the motion, the Court is to "view the complaint in
a light most favorable to the plaintiff." My/an Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir.
1993). The court "must accept as true all of the factual allegations contained in the complaint."
Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citing Bell At!. Corp. v. Twombly, 550 U.S. 544,
555-56 (2007)). However, the 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. Consumera.ffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009). Although

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complete and detailed factual allegations are not required, "a plaintiffs obligation to provide the
'grounds' of his 'entitle[ment] to relief requires more than labels and conclusions." Twombly,
550 U.S. at 555 (citations omitted). "Threadbare recitals ofthe elements of a cause of action,
supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (citing Twombly, 550 U.S. at 555).
North Carolina courts have held that "[a] constructive fraud complaint must allege facts
and circumstances (1) which created [a] relation oftrust and confidence, and (2) led up to and
surrounded the consummation of the transaction in which defendant is alleged to have taken
advantage of his position of trust to the hurt of plaintiff." Hunter v. Guardian Life Ins. Co. of

Am., 162 N.C. App. 477, 482 (2004) (internal quotation marks omitted) (quoting State Ex Rel.
Long v. Petree Stockton, L.L.P., 129 N.C. App. 432,445 (1998)).
Here, defendants allege that "a relationship of trust and confidence existed" between the
parties. Defendants also claim that, because of this relationship, "IDS had the duty to act in good
faith and with due regard" for defendants' interests. Defendants go on to claim that IDS used that
position of trust to obtain premiums and then deny coverage and failed to act fairly with regard
to defendants' homeowners insurance policy.
The Court finds that these assertions are precisely what the Rule 12(b)( 6) case law
forbids: "legal conclusions, elements of a cause of action, and bare assertions devoid of further
factual enhancement." Nemet Chevrolet, 591 F.3d at 255. Defendants have included no facts to
support the contention that a relationship of trust and confidence existed beyond simply stating
that one did. Moreover, other courts have held that whether "a relationship of trust and
confidence existed is a legal conclusion, which is not entitled to an assumption of truth on a
motion to dismiss." Lawley v. Liberty Mut. Grp., Inc., No. 5:11-CV-00106-RLV, 2012 WL

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4513622, at *6 (W.D.N.C. Sept. 28, 2012) (citing Hunter, 162 N.C. App. at 482 (refusing to find
a relationship of trust and confidence where plaintiffs failed to allege the facts and circumstances
creating the requisite relationship)).
The Court notes that existing case law is not entirely clear as to whether a fiduciary
relationship equals a relationship of trust and confidence, but that this is a distinction without a
difference in this case, as defendants have also pled insufficient facts to establish a fiduciary
relationship. "Determining whether a fiduciary relationship exists requires looking at the
particular facts and circumstances of a given case." Crumley & Assocs., P.C. v. Charles Peed &

Assocs., P.A., 219 N.C. App. 615, 620-21 (N.C. Ct. App. 2012). Under North Carolina law, a
fiduciary relationship arises when "there has been a special confidence reposed in one who in
equity and good conscience is bound to act in good faith and with due regard to the interests of
the one reposing confidence." Green v. Freeman, 367 N.C. 136, 141 (N.C. 2013) (quoting Abbitt

v. Gregory, 201 N.C. 577, 598 (1931)). Although North Carolina courts have "broadly defined
fiduciary relationships, no such relationship arises absent the existence of dominion and control
by one party over another." Kaplan v. O.K. Techs., L.L.C., 196 N.C. App. 469, 474 (N.C. Ct.
App. 2009). Consequently, "North Carolina courts generally find that parties who interact at
arms-length do not have a fiduciary relationship with each other." Crumley, 219 N.C.App. at 621
(citing Tin Originals, Inc. v. Colonial Tin Works, Inc., 98 N.C. App. 663,665 (1990)). Here,
defendants have pled no facts to establish that their relationship with plaintiff was fiduciary in
nature. They have pled no facts indicating that they placed special confidence in plaintiff, that
plaintiff was bound by equity and good conscience to place defendants' needs first, or that
plaintiff exercised dominion and control over defendants.

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Moreover, even if the relationship were fiduciary in nature, the fiduciary duty was limited
to an obligation on the part of the insurance agent to "correctly name the insured in the policy
and correctly advise the insured of the nature and extent of his coverage under the policy."

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Rayfield Props., LLC v. Business Insurers of the Carolinas, Inc., 2012 N.C. App. LEXIS 1429,
*8 (N.C. Ct. App. 20120 (quoting Cobb v. Pa. Life Ins. Co., 715 S.E.2d 541, 548 (N.C. Ct. App.
2011)). To make the requisite showing that there was an implied duty to advise, defendants
would have to plead facts demonstrating that "(1) the agent received consideration beyond mere
payment of the premium; (2) the insured made a clear request for advice; or (3) there is a course
of dealings over an extended period of time which would put an objectively reasonable insurance
agent on notice that his advice [was] being sought and relied on." Cobb, 715 S.E.2d at 548
(quoting Bigger v. Vista Sales & Mktg, Inc., 131 N.C. App. 101, 104 (1998)). Here, defendants
have pled no such facts, so the claim fails even if the relationship were fiduciary in nature.
Accordingly, defendants' third counterclaim fails under Rule 12(b)(6). As Rule 12(b)(6)
is a lower pleading standard than the heightened standard under Rule 9(b) for fraud claims, the
third counterclaim necessarily fails the Rule 9(b) analysis as well. Plaintiffs motion to dismiss
this counterclaim is granted.
III.

Fourth Counterclaim
Defendants' fourth counterclaim brings a claim of negligence against plaintiff. Recalling

the standards for a motion under Rule 12(b)( 6), discussed supra, the Court finds that defendants
have stated a claim upon which relief can be granted.
Defendant's fourth counterclaim alleges negligence on the part of plaintiff for failing to
inform defendants of the consequences of failing to keep the heat on in the residence at all times.
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The Court notes that this analysis focuses on the insurance agent, rather than the insurance
company, but includes it in an abundance of caution.
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Plaintiff argues that this claim is mutually exclusive to defendants' breach of contract
counterclaim. However, this argument fails at the motion to dismiss stage, as the rules permit
pleading in the alternative. See Fed. R. Civ. P. 8(d). The Court notes that plaintiff does not
otherwise object to the sufficiency of the claim except as it relates to the breach of contract
claim. As the Court finds that sufficient facts are pled, discussed supra, to get past the 12(b)(6)
standard, plaintiff's motion to dismiss defendants' fourth counterclaim fails.
CONCLUSION
As discussed above, plaintiff's motion to dismiss defendants' counterclaims is
GRANTED IN PART AND DENIED IN PART. [DE 22].

SO ORDERED, this j_Vay of April, 2016.

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T RRENCE W. BOYLE
UNITED STATES DISTRICT JUDGE

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