Estvold Oilfield Services, Inc. v. The Hanover Insurance Group, Inc. et al

Filing 52

ORDER by Magistrate Judge Charles S. Miller, Jr. granting in part and denying in part 26 Motion to Dismiss for Failure to State a Claim; denying 34 Motion for Hearing. (BG)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
Estvold Oilfield Services, Inc.,
Plaintiff,
vs.
The Hanover Insurance Company and
PayneWest Insurance, Inc.,
Defendants.

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ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO
DISMISS AND DENYING REQUEST
FOR A HEARING
Case No. 1:17-cv-016

Before the court is a “Motion to Dismiss for Failure to State a Claim” filed by the Hanover
Insurance Company (“Hanover”) on May 26, 2017. See Doc. Nos. 26 and 27. Also before the court
is Estvold Oilfield Services, Inc.’s (“Estvold”) motion for a hearing on Hanover’s motion. For the
reasons set forth below, Hanover’s motion is granted in part and denied in part and Estvold’s motion
for a hearing is denied.
I.

BACKGROUND
The following facts are either undisputed or are otherwise accepted as true for the purposes

of this motion. McAuley v. Federal Ins. Co., 500 F.3d 784, 787 (8th Cir. 2007).
Estvold purchased a Hanover-underwritten insurance policy through PayneWest in January
2016 for properties it owned in or near three North Dakota towns: New Town, Alexander, and
Richardton. One of Estvold’s properties, a Steel Shop located at 8449 39th St. NW, New Town,
North Dakota (hereinafter referred to as the “39th St. Steel Shop”) was destroyed in a conflagration
on April 23, 2016. Estvold promptly tendered a fire loss claim to Hanover. Hanover denied the
claim on the ground that the 39th St. Steel Shop was not amongst properties covered by Estvold’s
insurance policy.
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Estvold initiated the above-entitled action on January 18, 2017.

It has asserted claims

against Hanover for breach of contract, declaratory judgment, reformation of contract and specific
performance, and violation of the State’s Unfair Insurance Practices Act. It has asserted the same
claims along with additional claims for professional negligence and negligence against PayneWest.
It seeks a declaration that its insurance policy covers the fire damage to the 39th St. Steel Shop. In
the alternative, it seeks either reformation of the policy to reflect that the 39th St. Steel Shop was
covered and payment from Hanover for the fire loss claim, or a finding that PayneWest was
negligent for failing to correctly identify the 39th St. Steel Shop in the insurance proposal.
The insurance proposal prepared by PayneWest (and presumably accepted as is by Estvold)
listed the following schedule of properties to be covered by the policy:
Loc. No. 1- 3962 84th Ave. NW, New Town, ND 58763:
Building #1
Office/Shop: Steel
Loc. No. 2 - 3914 84th Ave. NW, New Town, ND 58763:
Building #1
Steel Shop
Building #2
Shop
Loc. No. 3 - Lot 1; Blk 6, Alexander Energy park, Alexander, ND:
Building #1
Storage
Loc. No. 4 - 4211 Hwy 8, Richardton, ND 58652:
Building #1
Steel Shop
Building #2
TBD
Building #3
Office
Building #4
Propane/water Depot tanks/pumps
(Doc. No. 1). Conspicuously absent from this schedule was any explicit identification of a fifth
location, i.e., 8449 39th St. NW, New Town, or mention of the 39th St. Steel Shop.
In its Complaint, Estvold contends that the 39th St. Steel Shop was not really omitted from
the insurance proposal but rather misidentified as Building #1 at Loc. No. 4, that there was mutual

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understanding amongst the parties that 39th St. Steel Shop was covered by the policy, and that such
coverage was calculated into the insurance premiums that were timely paid and that Hanover
accepted. Specifically, Estvold asserts that its intent was clear from the outset that it was seeking
coverage for all of its property, including the 39th St. Steel Shop; PayneWest understood this and
twice inspected the 39th St. Steel Shop during coverage negotiations; PayneWest prepared an
insurance proposal that listed a nonexistent property, Building #1 at Loc. No. 4; it and PayneWest
mutually understood and agreed that the insurance proposal’s reference to the Building #1 at Loc.
No. 4 was in actuality the 39th St. Steel Shop; PayneWest acted as Hanover’s agent at all times
relevant to this action; and PayneWest’s knowledge and understanding is imputable to Hanover.
On May 26, 2017, Hanover filed a motion to dismiss Estvold’s claims against it pursuant to
Fed. R. Civ. P. 12(b)(6). Estvold has filed a response in opposition and has requesting a hearing.
PayneWest has filed a special response, staking out its position regarding its relationship to
Hanover--it denies that it was Hanover’s agent--but otherwise taking no position as to whether
Estvold has pled its claims against Hanover with the requisite specificity. Hanover, in turn, has filed
a reply in support of its motion.
II.

STANDARD OF REVIEW
Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a pleading to contain a “short

and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8
(a)(2). Rule 12(b)(6) of the Federal Rules of Civil Procedure mandates the dismissal of a claim if
there has been a failure to state a claim upon which relief can be granted. In order 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

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(2009). A plaintiff must show that success on the merits is more than a “sheer possibility.” Id. A
complaint is sufficient if its “factual content . . . allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id. The court must accept all factual
allegations as true, except for legal conclusions or "formulaic recitation of the elements of a cause
of action.” Id. at 681. A complaint does not “suffice if it tenders a naked assertion devoid of further
factual enhancement." Id. at 678. The determination of whether a complaint states a claim upon
which relief can be granted is "a context-specific task that requires the reviewing court to draw on
its judicial experience and common sense." Id. at 679. Dismissal will not be granted unless it
appears beyond doubt the plaintiff can prove no set of facts entitling the plaintiff to relief. Ulrich
v. Pope Cnty, 715 F.3d 1054, 1058 (8th Cir. 2013).
The court is generally confined to looking only to the allegations contained in the complaint
to make a Rule 12(b)(6) determination. McAuley v. Fed. Ins. Co., 500 F.3d 784, 787 (8th Cir. 2007).
However, the “court may sometimes consider materials outside the pleadings, such as materials that
are necessarily embraced by the pleadings and exhibits attached to the complaint.” Mattes v. ABC
Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003) (citing Porous Media Corp. v. Pall Corp., 186
F.3d 1077, 1079 (8th Cir. 1999)).
In assessing the sufficiency of Estvold’s pleadings in this diversity action, the court shall
apply state substantive law. See Bell v. Pfizer, Inc., 716 F.3d 1087, 1091 (8th Cir. 2013);
Moses.com Sec., Inc., Comprehensive Software Sys., Inc., 406 F.3d 1052, 1063 (8th cir. 2005).
III.

DISCUSSION
A.

Breach of Contract

“A breach of contract is the nonperformance of a contractual duty when it is due.” WFND,
LLC v. Fargo Marc, LLC, 2007 ND 67, ¶ 13, 730 N.W.2d 841. To establish a breach of contract,
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the party asserting the breach must prove: (1) the existence of a contract; (2) a breach of the contract;
and (3) damages which flow from the breach. Id.
Under N.D.C.C. § 9–07–02, “[t]he language of a contract is to govern its interpretation if
the language is clear and explicit and does not involve an absurdity.” “The whole of a contract is to
be taken together so as to give effect to every part if reasonably practicable. Each clause is to help
interpret the others.” N.D.C.C. § 9–07–06.
Here, there is no dispute that the 39th St. Steel Shop was not explicitly listed amongst the
properties to be covered in the insurance proposal. Seizing upon this, Hanover insists that, because
the policy explicitly and unambiguously excluded coverage for the 39th St. Steel Shop, its denial
of the claim for fire damage 39th St. Steel Shop cannot constitute a viable claim for breach of
contract.
The gist of Estvold’s response is that Hanover breached the contract that was intended.
According to Estvold, there was a mutual understanding between PayneWest and Estvold that: (1)
Estvold was purchasing coverage for all of its property, including the 39th St. Steel Shop; (2) the
reference in the insurance proposal to Building #1 at Loc. No. 4 was a scrivener’s error; (3) the
aforementioned Building #1 was in actuality the 39th St. Steel Shop; and (4) PayneWest’s
knowledge and understanding can be imputed to Hanover by the fact that it was acting as its agent
either in fact or because of its apparent authority.
Hanover denies that PayneWest was its agent. In its special response, PayneWest likewise
denies it was Hanover's agent. Additionally, it disputes Estvold's assertion that the exclusion of the
39th St. Steel Shop from the insurance proposal was a mistake or that it had a mutual understanding
with Estvold that Building #1 at Loc. No. 4 was in fact the 39th St. Steel Shop.
While the court has some doubt about whether PayneWest acted as Hanover’s agent for
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purposes of the negotiation of the policy, the resolution of that question is for another day since the
court must accept as true what has been pled in the complaint for purposes of the motion to dismiss.
Further, if the court was to reform the contract, then, theoretically, it is the breach of the reformed
contract that would provide a basis for the recovery. At this point, the court will not dismiss the
breach of contract claim.
B.

Declaratory Judgment

Hanover next contends that declaratory judgment in Estvold’s favor would be inappropriate
as Estvold is ostensibly seeking to reform its insurance policy as opposed to a determination of its
rights under it and that such a claim is otherwise subject to dismissal on the ground that it is
duplicative of the breach of contract claim. See Catalono v. BMW of N. Amer., LLC, 167 F. Supp.
2d 996, 563 (S.D.N.Y. 2016); MASTR Asset Backed Sec. Trust 2006-H3D ex. rel. U.S. Bank Nat.
Ass’n v. WMC Mortg. Corp., 843 F. Supp. 2d 996, 1001 (D. Minn. 2012). Given the present
posture of this case, however, the court is inclined to allow Estvold to proceed with this claim.
C.

Reformation and Specific Performance

“The construction of a written contract to determine its legal effect is generally a question
of law.” Freidig v. Weed, 2015 ND 215¶ 10, 868 N.W.2d 546, 215 (quoting Pear v. Grand Forks
Motel Assocs., 553 N.W.2d 774, 779 (N.D. 1996)). “A court interprets a written contract to give
effect to the mutual intention of the parties as it existed at the time of contracting.” Id. (citing
N.D.C.C. § 9–07–03. “The parties' intentions must be ascertained from the writing alone, if
possible.” Pear, 553 N.W.2d at 779 ; N.D.C.C. 9–07–04. “In the absence of an ambiguity, a written
contract supersedes any prior oral agreement or negotiations between the parties.” Pear, 553 N.W.2d
at 779; N.D.C.C. § 9–06–07.
“If a written contract is unambiguous, however, parol evidence is nevertheless admissible
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in an action to reform the contract on the grounds of mutual mistake to establish the alleged mistake
and to correct the instrument to conform to the agreement or intention of the parties” Id. at ¶ 11;
see also N.D.C.C. § 32-04-17 (“When, through fraud or mutual mistake of the parties, or a mistake
of one party which the other at the time knew or suspected, a written contract does not truly express
the intention of the parties, it may be revised on the application of a party aggrieved so as to express
that intention so far as it can be done without prejudice to rights acquired by third persons in good
faith and for value.”).
“Reformation is an equitable remedy used to rewrite a contract to accurately reflect the
parties' intended agreement.” Spitzer v. Bartelson, 2009 ND 179, ¶ 22, 773 N.W.2d 798. The North
Supreme Court has recognized that “equity will grant remedial relief in the nature of reformation
of a written instrument, resulting from a mutual mistake, when justice and conscience so dictate.”
Ell v. Ell, 295 N.W.2d 143, 150 (N.D.1980). Whether a contract contains a mistake sufficient to
support a reformation claim is a question of fact. Spitzer, 2009 ND 179, ¶ 22. State law defines a
“mistake of fact” as follows:
Mistake of fact is a mistake not caused by the neglect of a legal duty on the part of
the person making the mistake and consisting in:
1.

An unconscious ignorance or forgetfulness of a fact, past or present, material
to the contract; or

2.

Belief in the present existence of a thing material to the contract which does
not exist, or in the past existence of such a thing which has not existed.

N.D.C.C. § 9-03-13.
Hanover asserts that the pleadings are deficient when it comes to the claimed entitlement to
reformation. Specifically, it avers that the pleadings are devoid of any suggestion there was any
mutual mistake and that Estvold’s apparent failure to review the terms of the insurance proposal

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does not constitute a valid basis for rewriting them after the fact. In so doing, it denies that
PayneWest was its agent and, by extension, that PayneWest’s knowledge and understanding can be
ascribed to it. In its view, the fact that it was not named along with PayneWest in Estvold’s claim
for professional malpractice is telling.
The fact that Estvold is pursuing a claim against PayneWest for professional malpractice
does not foreclose it from seeking, in the alternative, reformation. And, if PayneWest was acting as
the agent of for Hanover as contended in the complaint, then what has been pled is sufficient to state
a claim for reformation for reasons that are obvious.
Also, the court is not convinced that Estvold would not have a plausible claim for
reformation based on mutual mistake, even if PayneWest was acting as its agent and not Hanover’s.
This is particularly true given (1) the allegation there was a building in the scheduled list of property
that did not exist at the address indicated, but for which Hanover collected a premium, and (2) the
allegation that the address should have been that of the building that was destroyed. While Hanover
denies any mistake on its part, surely Hanover’s practice is not to charge and collect premiums based
on non-existent property.
In other words, this case would look a lot different if PayneWest was acting as Estvold’s
agent, the destroyed property was not included in the schedule of property due to the mistake of
Estvold and/or PayneWest, and all of the other buildings in the schedule upon which the premiums
were based actually existed and presented a risk of loss. But, that is not what is being alleged here.
And, just because Hanover might rely upon others to determine whether the property it contracts to
insure actually exists, the court cannot think of a reason - at least not one at this point - why that
would relieve Hanover of the consequences of a mistake in charging a premium based in part on
nonexistent property, if that is what happened.
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The court will allow the claim for reformation to proceed forward.
D.

Violation of the Unfair and Deceptive Insurance Practices Act

Estvold’s fourth and final claim against Hanover is that it violated the Unfair and Deceptive
Insurance Practices Act, codified at Ch. 26.1-04. Specifically, Estvold alleges:
52.

Hanover’s failure to pay insurance benefits was in bad faith and constituted
unfair insurance practices under N.D.C.C. § 26.1-04-03, including but not
limited to violations for:
a.

Not attempting in good faith to effectuate prompt fair and equitable
resolution of Estvold’s claim for benefits.

b.

Compelling Estvold to initiate this suit to resolve amounts due for
insurance benefits.

c.

Failing to pay insurance benefits without having a reasonable basis
for doing so.

(Doc. No. 1).
Hanover asserts this cause of action is unsustainable as the alleged misconduct, the wrongful
denial of Estvold’s fire loss claim, is a single act and therefore insufficient to establish a “general
business practice” for purposes of § 26.1-04-03. For support it relies upon the North Dakota’s
Supreme Court’s holdings in Volk v. Wis. Mort. Assur. Co., 474 N.W.2d 40 (N.D. 1991), and
Dvorak v. Am. Family Mut. Ins. Co., 508 N.W.2d 329, 332-33 (N.D. 1993). It also cites to this
court’s decision in Star Ins. Co. v. Cont’l Res., Inc., No. 4:12-cv-121, 2013 WL11975128 (D.N.D.
Feb. 20, 2013) [hereinafter referred to as “Star”].
In Volk, the North Dakota Supreme Court affirmed the lower court’s dismissal on summary
judgment of a claimed violation of the Unfair Insurance Practices Act by mortgage insurer, holding:
We need not determine whether Chapter 26.1–04, N.D.C.C., creates a private civil
right of action [see Szarkowski v. Reliance Ins. Co., 404 N.W.2d 502, 504
(N.D.1987); compare Farmer's Union Central Exchange v. Reliance Ins. 626 F.Supp.
583, 590 (D.N.D.1985) with Farmer's Union Central Exchange v. Reliance Ins. Co.,
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675 F.Supp. 1534, 1536–1538 (D.N.D.1987) and Moradi–Shalal v. Fireman's Fund
Ins., 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58 (1988) ], because even assuming
that it does, we agree with [the insurer] that these statutory provisions are as a matter
of law not applicable under the circumstances of this case. Section 26.1–04–03(9)
specifically requires that the proscribed acts be “performed with a frequency
indicating a general business practice” to constitute an unfair claim settlement
practice. Construing similar language in Mead v. Burns, 199 Conn. 651, 509 A.2d
11, 16 (1986), the Supreme Court of Connecticut held that claims of unfair
settlement practices under its state act “require a showing of more than a single act
of insurance misconduct.” There is no evidence here that [the insurer] was involved
in insurance misconduct with such a frequency indicating a general business practice.
Volk v. Wis. Mort. Assur. Co., 474 N.W.2d at 45. In Dvorak, it likewise held that a single alleged
act of misconduct did not constitute an actionable claim under Ch. 26.1-04. 508 N.W.2d at 332.
In Star, this court embraced the North Dakota Supreme Court holdings in Volk and Dvorak
and dismissed an insured’s counterclaim against an insured for an alleged violation of Ch. 26.1-04.
As it relates to the statutory claim, [the insured] has not alleged that [the insurer’s]
actions were taken with a frequency sufficient to constitute a general business
practice. Nor has [the insured] alleged that [the insurer] acted without just cause,
although it may arguably be implied from the allegation of bad faith. What is fatal
to the claim is that [the insured] has alleged only a single instance of misconduct.
Volk and Dvorak make it clear that a single instance of misconduct is insufficient.
[The insurer] has pled no facts which support the proposition that [insurer] has
engaged in unfair practices with a frequency sufficient to constitute a general
business practice. Rule 8 does not “unlock the doors of discovery” to support an
allegation premised upon mere conclusions. Iqbal, 556 U.S. at 678-79. [The insured]
has failed to plead both the elements of a statutory claim under N.D.C.C. §
26.1-04-03(9) and facts [that] might support such a claim. Thus, the Court concludes
that [the insured’s] claim under Section 26.1-04-03(9) of the North Dakota Century
Code fails as a matter of law.
Star, 2013 WL11975128, at *2.
Estvold’s response is somewhat nuanced. Estvold does not challenge the legal authority
upon which Hanover relies. Rather, it takes issue with Hanover’s assertion that its denial of the fire
loss claim constituted a single act. Specifically, it avers that Hanover denied its fire loss claim six
times between May and July 2016 as evinced by emails attached to its responsive brief, that each

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denial by Hanover constituted a separate act for purposes of § 26.1-04-03, and that collectively these
denials are demonstrative of a pattern or practice for purposes of § 26.1-04-03. It further avers that
Hanover engaged in other conduct, i.e., the denial of payment to a third-party vendor for work done
on the 39th St. Steel Shop in July 2016 and the denial of coverage on an unrelated claim made by
Estvold for a skid steer loader - that are further demonstrative of a pattern or practice of deceptive
and unfair insurance practices.
Common sense would seemly dictate that, for purposes of Ch. 26.1-04, the repeated denial
of the same claim on the same grounds constitutes a single act as opposed to a pattern or practice.
Otherwise every insured could arguably “manufacture” a claim against every insurer under Ch.
26.1-04 by repeatedly resubmitting claims that the insurers had denied in the first instance.
In any event, Estvold’s pleadings are devoid of any explicit assertion that Hanover engaged
in a pattern or practice; tellingly, Estvold complains about the denial of its claim in the singular, not
in the plural. Moreover, Estvold has cited no authority to support the assertion it makes in its
responsive brief that each denial of the same claim by Hanover on the same grounds constitutes a
pattern or practice for purposes for § 26.1-04-03. Finally, Estvold’s assertion in its responsive brief
that Hanover’s refusal to pay a third-party vendor and denial of an unrelated claim as evidence of
a pattern or practice are unavailing. The pleadings make no mention of such conduct. And for
purposes of the instant motion, the court must focus on what is in the pleadings.
The basis for Estvold’s Unfair and Deceptive Insurance Practices Act claim is that Hanover
wrongfully denied its fire loss claim. As this denial does not constitute a pattern for purposes of the
Act, the pleadings fail to articulate claim for which relief may be granted under the Act.
IV.

CONCLUSION
Hanover’s motion to dismiss (Doc. No. 26) is GRANTED IN PART AND DENIED IN
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PART. Estvold’s Unfair and Deceptive Insurance Practices Act claim is DISMISSED WITHOUT
PREJUDICE. Estvold may proceed with the remainder of its claims against Hanover. Estvold’s
motion for a hearing (Doc. No. 34) is DENIED.
IT IS SO ORDERED.
Dated this 27th day of April, 2018.
/s/ Charles S. Miller, Jr.
Charles S. Miller, Jr., Magistrate Judge
United States District Court

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