Siddique v. Western Heritage Insurance Company et al
Filing
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OPINION AND ORDER by Magistrate Judge Steven P. Shreder : granting 8 Defendant Western Heritage Insurance Company's Partial Motion to Dismiss and dismissing Plaintiff's second, third, fourth, fifth, sixth and seventh causes of action. (neh, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
MUHAMMAD L. SIDDIQUE,
Plaintiff,
v.
WESTERN HERITAGE INSURANCE
COMPANY, et al.,
Defendants.
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Case No. CIV-14-456-SPS
OPINION AND ORDER GRANTING DEFENDANT
WESTERN HERITAGE INSURANCE COMPANY’S
PARTIAL MOTION TO DISMISS AND BRIEF IN SUPPORT
This matter comes before the Court on Defendant Western Heritage Insurance
Company’s Partial Motion to Dismiss and Brief in Support [Docket No. 8] pursuant to
Fed. R. of Civ. P. 12(b)(6). On May 19, 2014, Plaintiff Muhammad L. Siddique filed this
action in state court in Murray County, Oklahoma, in Case No. CJ-2014-42, against
Defendants Western Heritage Insurance Company (“Western Heritage”); Specialty
Insurance Managers of Oklahoma, Inc.; Wardlaw Claims Service, LLP; and Dennis Ray
Eastep, Jr. See Case No. CJ-2014-42. Defendant Western Heritage removed the case to
this Court on October 17, 2014, and subsequently filed the present Partial Motion to
Dismiss [Docket No. 8], challenging the Plaintiff’s Petition [Docket No. 3, Ex. 2] under
Rule 12(b)(6) for failing to allege sufficient facts to state a claim upon which relief may
be granted as to the Plaintiff’s second, third, fourth, fifth, sixth, and seventh causes of
action.1 For the reasons set forth below, the Defendant’s Partial Motion to Dismiss is
hereby GRANTED.
BACKGROUND
The Plaintiff alleges that he suffered property damage to his home arising from a
hailstorm in May 2013, and that the Defendant did not properly adjust his insurance
claim. Specifically, he alleged the following causes of action in his Petition: (i) breach
of contract, (ii) bad faith for violations of the Oklahoma Unfair Claims Settlement
Practices Act, (iii) breach of fiduciary duty, (iv) negligent procurement of insurance,
(v) constructive fraud and negligent misrepresentation, (vi) negligent underwriting,
(vii) violation of the Oklahoma Consumer Protection Act, and (viii) breach of the
common law duty of good faith and fair dealing. Defendant Western Heritage then filed
the present motion to dismiss claims two through seven.
The Plaintiff agreed to
voluntarily dismiss Count II, leaving Counts III through VII to the disposition of this
Court under the pending Motion to Dismiss.
ANALYSIS
A complaint must contain “a short and plain statement of the claim showing that
the pleader is entitled to relief[.]” Fed. R. Civ. P. 8(a)(2). Detailed factual allegations are
not required, but the statement of the claim under Rule 8(a)(2) must be “more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.”
Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009), citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007),
1
On November 3, 2014, the Plaintiff stipulated to the dismissal without prejudice of all
other Defendants [Docket No. 11], leaving Defendant Western Heritage as the sole remaining
Defendant in this case.
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citing Papasan v. Allain, 478 U.S. 265, 286 (1986). “A pleading that offers labels and
conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor
does a complaint suffice if it tenders naked assertion[s] devoid of further factual
enhancement . . . To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face. A
claim has facial plausibility when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678, quoting Twombly, 550 U.S. at 555, 556, 557, 570 [internal
quotation marks omitted]. “While legal conclusions can provide the framework of a
complaint, they must be supported by factual allegations.” Iqbal, 556 U.S. at 679.
“While the 12(b)(6) standard does not require that Plaintiff establish a prima facie case in
h[is] complaint, the elements of each alleged cause of action help to determine whether
Plaintiff has set forth a plausible claim.” Khalik v. United Air Lines, 671 F.3d 1188, 1192
(10th Cir. 2012). This requires a determination as to “whether the complaint sufficiently
alleges facts supporting all the elements necessary to establish an entitlement to relief
under the legal theory proposed.” Lane v. Simon, 495 F.3d 1182, 1186 (10th Cir. 2007),
quoting Forest Guardians v. Forsgren, 478 F.3d 1149, 1160 (10th Cir. 2007). The Court
will address each cause of action in turn.
Count III: Breach of Fiduciary Duty
The Plaintiff asserts in his Petition that a special relationship akin to that of a
fiduciary existed between the Plaintiff and Defendant due to unequal bargaining power,
the quasi-public nature of insurance, and the potential for the Defendant to exploit the
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Plaintiff’s vulnerability. See Petition, Docket No. 3, Ex. 2, pp. 7-8 ¶¶ 34-41. He further
alleged that the Defendant’s specialized knowledge and duty to act reasonably created
this special relationship. Id. The Defendant contends that under established Oklahoma
law, an insurer does not owe a fiduciary duty to an insured.
In support of his claim for breach of a fiduciary duty, the Plaintiff relies on
Quinlan v. Koch Oil Co., 25 F.3d 936 (10th Cir. 1994), which states, “Fiduciary
relationships are not limited to any specific legal relationship, but can arise anytime the
facts and circumstances surrounding a relationship would allow a reasonably prudent
person to repose confidence in another person.” Id. at 942, quoting Devery Implement
Co. v. J.I. Case Co, 944 F.2d 724, 730 (10th Cir. 1991). The four elements of a breach of
fiduciary duty claim are: “(1) the existence of a fiduciary relationship, (2) a duty arising
out of the fiduciary relationship, (3) a breach of the duty, and (4) damages proximately
caused by the breach of duty.” F.D.I.C. v. Grant, 8 F. Supp. 2d 1275, 1299 (N.D. Okla.
1998). The Plaintiff’s assertion ignores that the Oklahoma Supreme Court has already
determined that the special relationship between insurer and insured “stem[s] from the
quasi-public nature of insurance, the unequal bargaining power between the insurer and
insured, and the potential for an insurer to unscrupulously exert that power at a time when
the insured is particularly vulnerable,” and that such a “special relationship creates a
nondelegable duty of good faith and fair dealing on the part of the insured.” Wathor v.
Mutual Assurance Administrator Inc., 2004 OK 2, ¶ 6, 87 P.3d 559, 561-562, citing
Christian v. American Home Assurance Co., 1977 OK 141, 577 P.2d 899, 902-904. The
Tenth Circuit stated, “Oklahoma law would recognize a fiduciary duty arising out of a
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commercial contract if the transaction involved facts and circumstances indicative of the
imposition of trust and confidence, rather than facts and circumstances indicative of an
arms length commercial contract. Quinlan, 25 F.3d at 942. Plaintiff has pleaded no facts
that support such an allegation of a fiduciary duty, nor has he asserted facts disclosed
during discovery would lend support to such an allegation. Further, the Plaintiff has
already asserted a valid claim for a violation of the duty of good faith and fair dealing
(Count VIII), which the Defendant does not challenge. See Cosper v. Farmers Ins. Co.,
2013 OK CIV APP 78 ¶ 12, 309 P.3d 147, 150 (“[T]he existence of the duty of good faith
and fair dealing implied in insurance contracts does not necessarily mean Plaintiffs’
petition states a claim for breach of fiduciary duty.”).
See also Swickey v. Silvey
Companies, 1999 OK CIV APP 48 ¶ 12, 979 P.2d 266, 269 (“There are no Oklahoma
cases holding that an insurance agent owes a fiduciary duty to a prospective insured, or to
an established customer . . . Granted, Agency had a duty to act reasonably, given the
specialized knowledge it possessed of the terms and conditions of insurance policies
generally. But, that specialized knowledge, such as it was, did not in this case create such
a special relation . . . so as to make Agency a fiduciary[.]”). Accordingly, the Court finds
that the Plaintiff has failed to state a plausible claim for breach of fiduciary duty against
the Defendant Western Heritage. See, e. g., Wolf v. State Farm and Cas. Co., 2015 WL
1014650, at *5 (W.D. Okla. Mar. 9, 2015) (“[T]he Oklahoma Supreme Court has found
that the special relationship that exists between an insured and insurer creates a
nondelegable duty of good faith and fair dealing. Since the Court has already found that
plaintiff has sufficiently pled a cause of action for breach of the duty of good faith and
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fair dealing, the Court finds that plaintiff’s breach of fiduciary duty claim should be
dismissed.”), citing Wathor, 2004 OK 2, ¶6, 87 P.3d at 561-562; Supermart No. 7 v.
North Star Mutual Ins. Co., 2015 WL 737006, at *2 (W.D. Okla. Feb. 20, 2015) (same).
But see SAB One, Inc. v. Travelers Indem. Co. of Connecticut, 2014 WL 6901741, at *3
(W.D. Okla. Dec. 5, 2014) (allowing amendment of Complaint where Plaintiff had
argued “that sufficient facts to establish a fiduciary relationship may come to light during
discovery so dismissal would be premature.”); Atlantic Mut. Ins. Co. v. Stephen B.
Browne Co., 2010 WL 796773, at *5 (W.D. Okla. Feb. 26, 2010) (same).
Count IV: Negligent Procurement of Insurance
Next, the Plaintiff asserts that Defendant Western Heritage is vicariously liable for
the actions of its agent, former co-Defendant Specialty Insurance, and that Western
Heritage owed him “a duty to act in good faith and to exercise reasonable care, skill and
diligence in the procurement of insurance[.]” See Docket No. 3, Ex. 2, pp. 8-10, ¶¶ 4757. “In order to prevail on a claim for breach of contract to procure insurance, a plaintiff
must show that the insurance agent agreed to procure insurance coverage effective as of a
certain date and time, or of a certain breadth, and then failed to do so.” Swickey, 1999
OK CIV APP 48 ¶ 9, 979 P.2d 266, 268. If an insured accepts a policy, “the provisions
of which are plain, clear, and free from all ambiguity, [he] is chargeable with knowledge
of the terms and legal effect of these contracts.” Liverpool & L. & G. Ins. Co. v. T.M.
Richardson Lumber Co., 1902 OK 7 ¶ 2, 69 P. 936, 937 (Okla. Terr.). Furthermore,
“insurance companies [and] their agents [do not] have a duty to advise an insured with
respect to his insurance needs.” Rotan v. Farmers Ins. Group of Companies, Inc., 2004
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OK CIV APP 11, ¶ 2, 83 P.3d 894, 895, quoting Mueggenborg v. Ellis, 2002 OK CIV
APP 88, ¶ 7, 55 P.3d 452, 453. On the face of his Petition, the Plaintiff has alleged that
Defendant Specialty Insurance (and not Western Heritage) breached a duty in how they
procured an insurance policy and subsequently failed to inform him of the limitations of
the acquired policy, and that Western Heritage is therefore vicariously liable because
Specialty Insurance was an agent of Western Heritage. Plaintiff in his Petition has not
alleged that the agent failed to procure insurance at all, but is rather complaining of the
policy that was procured, and that Western Heritage is vicariously liable for the
inadequacies of said policy. “[N]o duty exists upon an insurer to provide an ‘adequate
amount’ of coverage when the insurer did not fail to procure insurance for the insured.”
Supermart No. 7, 2015 WL 737006, at *3 (slip op.) (“Supermart does not allege it did not
have insurance coverage during the wind/hail storm . . . As a result of Supermart’s failure
to demonstrate it lacked property insurance during [the storm], the Court finds that North
Star is entitled to judgment on the pleadings as to Supermart’s negligence in the
procurement of insurance claim.”), citing Cosper, 2013 OK CIV APP 78 ¶ 8-9, 309 P.3d
at 149; Smith v. Allstate Vehicle and Property Ins. Co., 2014 WL 1382488, at *2 (W.D.
Okla. Apr. 8, 2014) (slip op.) (“Because plaintiffs acknowledge that coverage was
obtained and do not allege that the amount of coverage was not what they had requested,
their attempt to hold Muse accountable under Oklahoma law for his conduct in
conjunction with the procurement of their policy fails.”). See also Country Gold, Inc. v.
State Auto Property and Casualty Insurance Co., 2015 WL 431638, at *3 (W.D. Okla.
Feb. 2, 2015) (“[T]here is no legal basis for Plaintiff’s negligence claim based on an
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alleged failure of Defendant’s agent to properly advise Plaintiff regarding its insurance
needs or to procure a policy that provided an adequate amount of replacement cost
coverage.”); Rivera v. Hartford Ins. Co. of the Midwest, 2014 WL 7335320, at *2 (W.D.
Okla. Dec. 19, 2014) (same). Accordingly, the Court finds that the Defendant is entitled
to dismissal of this claim.
Count V: Constructive Fraud/Negligent Misrepresentation
In the Plaintiff’s fifth cause of action, he alleges that he was misled by Specialty
Insurance’s misrepresentations to purchase Western Heritage’s insurance policy, and that
Western Heritage is vicariously liable because Defendant Specialty Insurance breached
its duty by misrepresenting that: (i) the insurance procured was one of replacement,
(ii) the amount of coverage procured was equal to the estimated replacement cost of his
property, and (iii) the amount of coverage provided would provide the necessary
coverage in the event it was destroyed by a covered loss. See Docket No. 3, Ex. 2, pp.
11-13, ¶¶ 58-71. See Supermart No. 7, 2015 WL 737006, at *3 (in claim for negligent
procurement, alleged that agent and insurance company “breached their duties owed to
Plaintiff by: [i. p]rocuring an insurance policy that did not serve to actually replace its
business and personal property when it was damaged or destroyed by a covered loss[, ii.
p]rocuring an insurance policy that did not accurately reflect the replacement cost of
Plaintiff’s dwelling[, and iii. F]ailing to inform Plaintiff of the limitations of the
insurance policy procured for Plaintiff.”).
Under Oklahoma law, constructive fraud
“consists: 1. In any breach of duty which, without an actually fraudulent intent, gains an
advantage to the person in fault, or any one claiming under him, by misleading another to
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his prejudice, or to the prejudice of any one claiming under him; or, 2. in any such act or
omission as the law specially declares to be fraudulent, without respect to actual fraud.”
15 Oka. Stat. § 59.
Generally, Oklahoma courts have found that insurance companies
and their agents do not have a duty to advise someone as to their insurance needs.
Mueggenborg, 2002 OK CIV APP 88, ¶ 7, 55 P.3d at 453 ([T]he majority of other
jurisdictions have rejected the concept that insurance companies or their agents have a
duty to advise an insured with respect to his insurance needs.). If, then, there is no duty,
then such a claim of constructive fraud by way of negligent misrepresentation must fail.
See Cosper, 2013 OK CIV APP 78, ¶ 11, 309 P.3d at 149-150 (“Title 15 O.S. 2011 § 59
defines constructive fraud as a breach of duty which allows one to gain advantage by
misleading another. Since Defendants did not owe Plaintiffs a duty in negligence or for
misrepresentation, their claim for constructive fraud also fails.”). Here, the Plaintiff has
failed to establish the existence of such a duty under Oklahoma law, nor has he proffered
any statement that their relationship was anything other than an arms’ length transaction.
See also Silver v. Slusher, 1988 OK 53 ¶ 7 & n.11, 770 P.2d 878, 882 (finding theory of
constructive fraud unavailable to insureds where: (i) insurance company had no statutory
duty, (ii) their relationship was at arms’ length, and (iii) argument was not submitted to
the trial court). As noted above, the Plaintiff received a copy of his insurance policy, and
he was charged with knowledge regarding the terms of the policy. See Liverpool, 1902
OK 7 ¶ 2, 69 P. 936, 937. In Country Gold, where the Plaintiff made the identical
allegation of constructive fraud based on negligent misrepresentation of an insurance
agent, the Court held that although the “Plaintiff argues generally that Defendant owed a
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duty to exercise reasonable skill and diligence in procuring the insurance Plaintiff
requested and that an insurance agent should be held accountable for misrepresenting the
terms or limits of an insurance policy,” the Plaintiff had nevertheless “fail[ed] to address”
the argument that he had received a copy of the policy and that the policy as written was
applied to his claim.
Country Gold, 2015 WL 431638, at *4 (“[T]he Court finds
Plaintiff’s arguments regarding the duties of an insurance company or insurance agent to
be unpersuasive in light of Oklahoma case law.”). See also Supermart No. 7, 2015 WL
737006, at *3 (“As a result of Supermart’s failure to demonstrate it lacked property
insurance during the [storm], the Court finds that North Star is entitled to judgment on the
pleadings as to Supermart’s negligence in the procurement of insurance claim.”); Rivera,
2014 WL 7335320, at *2 (“[P]laintiffs do not allege in their complaint that they actually
requested specific coverage which Hartford failed to provide. Instead, they make the
general assertion that they ‘trusted and believed Defendant HARTFORD had the
requisite insurance broker/agent skills and expertise to properly procure the replacement
cost coverage Plaintiffs requested.’ The lack of factual allegations demonstrating a
specific breach of duty renders plaintiffs’ negligent procurement claim insufficient.
Without an underlying duty, their constructive fraud/misrepresentation claim and
negligent underwriting claims also fail.”). The Plaintiff has likewise failed to do so here.
Accordingly, the Plaintiff has failed to state a plausible claim for relief for constructive
fraud based on negligent misrepresentation.
Count VI: Negligent Underwriting
Plaintiff alleges in his sixth cause of action that the Defendant Western Heritage
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breached its duty of good faith by failing to “conduct an appropriate underwriting
analysis” and that the breach “resulted in both inconsistent and inaccurate replacement
cost valuations whereby the Plaintiff paid premiums for policy limits that did not
accurately reflect the risks insured.” See Docket No. 3, Ex. 2, pp. 13-16, ¶¶ 72-86. He
further alleges that Western Heritage applied “annual inflationary adjustments . . .
without regard to whether or not the inflationary adjustment increase was necessary[.]”
Id at ¶ 77. The Defendant asserts that this is not a recognized claim under Oklahoma law,
and the Court agrees. After citing cases referring to negligent procurement of insurance,
the Plaintiff asserts that he has nonetheless stated a proper claim for negligent
underwriting because the Defendant raised his premiums on a negligent evaluation of the
property values, leading to excess profits for the insurance company. The Court has
found no law to suggest that a common law action for negligence may be based on an
insurer’s decision to raise an insured’s premium. Cf. Murchison v. Progressive Northern
Ins. Co., 572 F. Supp. 2d 1281, 1284 (E.D. Okla. 2008) (“The court has found nothing
that might suggest that a common law action for negligence exists based on an insurer’s
failure to pay a claim for six months. . . . If every insured could bring a claim for
negligence against the insurer under the insurance contract, there would be no need for
claims of breach of contract and bad faith. Negligence actions would swallow insurance
jurisprudence.”). After reviewing the Plaintiff’s factual allegations and construing them
in the light most favorable to the Plaintiff, the Court nevertheless concludes that he has
failed to state a claim of negligent underwriting, or to support its existence under
Oklahoma law. As in Supermart, the Court thus finds that the Plaintiff has simply
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alleged a claim of bad faith, which remains as the Plaintiff’s eighth cause of action.
Supermart No. 7, 2015 WL 737006, at *4 (“Having carefully reviewed Supermart’s
Complaint, and presuming all of Supermart’s factual allegations are true and construing
them in the light most favorable to Supermart, the Court finds that Supermart has failed
to state a claim for negligent underwriting. The Court specifically finds that Supermart
has failed to identify any authority showing negligent underwriting is a recognized form
of recovery against insurers in Oklahoma. . . . The Court finds that this allegation is
essentially a bad faith claim, and [that] Supermart has already pled a cause of action for
the breach of the duty of good faith and fair dealing[.]”). See also Country Gold, 2015
WL 431638, at *3 (“Similarly, Plaintiff provides no legal authority that would support
the negligent underwriting theory asserted.”); Rivera, 2014 WL 7335320, at *2 (“The
lack of factual allegations demonstrating a specific breach of duty renders plaintiffs’
negligent procurement claim insufficient. Without an underlying duty, their constructive
fraud/misrepresentation claim and negligent underwriting claims also fail.”).
Count VII: Violation of the Oklahoma Consumer Protection Act
Finally, the Plaintiff alleges that Western Heritage violated the Oklahoma
Consumer Protection Act. To recover under the Oklahoma Consumer Protection Act
(“OCPA”), the elements for a private cause of action are: “(1) that the defendant engaged
in an unlawful practice as defined in 15 O.S. § 753; (2) that the challenged practice
occurred in the course of the defendant’s business; (3) that the plaintiff, as a consumer,
suffered an injury in fact; and (4) that the challenged practice caused the plaintiff’s
injury.” Patterson v. Beall, 2000 OK 92, ¶ 30, 19 P.3d 839, 846; 15 O.S. §§ 752-754, §
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753 (enumerating unlawful practices under the OCPA). Exemptions to the Oklahoma
Consumer Protection Acts authority exist when there are “[a]ctions or transactions
regulated under laws administered by . . . any other regulatory body[.]” 15 O.S. § 754.
The Defendant asserts, and the Plaintiff agrees, that Western Heritage is regulated by the
Department of Insurance, but the Plaintiff nevertheless contends that the specific conduct
at issue in his Petition is not thus regulated. But,
The regulatory authority of the Insurance Commissioner under the
Oklahoma Insurance Code, Okla. Stat. tit. 36, §§ 101–7301, expressly
encompasses the conduct of insurers in the marketing and sale of insurance
policies, disclosures of information, and the adjustment of claims. Further,
the Commissioner has “jurisdiction over complaints against all persons
engaged in the business of insurance.”
Country Gold, 2015 WL 431638, at *5, quoting 36 Okla. Stat. §307. “Further, the Court
is persuaded by the conclusion of the Oklahoma Court of Civil Appeals that the
exemption of § 754(2) applies when an OCPA claim rests on ‘an insurer's activity in the
business of insurance.’ Federal courts called to consider the exemption have agreed.”
Country Gold, 2015 WL 431638, at *5, quoting Conatzer v. Am. Mercury Ins. Co., 2000
OK CIV App 141 ¶ 8, 15 P.3d 1252, 1255, citing Childs v. Unified Life Ins. Co., 781 F.
Supp. 2d 1240, 1250 (N.D. Okla. 2011) and Thomas v. Metro. Life Ins. Co., 540 F. Supp.
2d 1212, 1228 (W.D. Okla. 2008).” Here, as in Country Gold, the Plaintiff’s allegations
fall within the purview of an insurer engaged in the business of insurance, which are
regulated by the Oklahoma Department of Insurance and may not be raised under the
OCPA. See Wolf, 2015 WL 1014650, at *4 (“[D]efendant is an insurer regulated by the
Oklahoma Department of Insurance, and plaintiff’s alleged actions against defendant all
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fall under the premise of doing business with an insurance company, actions regulated by
the Oklahoma Department of Insurance.”); Supermart No. 7, 2015 WL 737006, at *4
(“North Star is an insurer regulated by the Oklahoma Department of Insurance, and
Supermart’s alleged actions against North Star all fall under the premise of doing
business with an insurance company; actions regulated by the Oklahoma Department of
Insurance.”).
CONCLUSION
Consequently, IT IS ORDERED that the Defendant Western Heritage Insurance
Company’s Partial Motion to Dismiss and Brief in Support [Docket No. 8] is hereby
GRANTED, and that the Plaintiff’s second, third, fourth, fifth, sixth, and seventh causes
of action are hereby DISMISSED.
IT IS SO ORDERED this 21st day of May, 2015.
STEVEN P. SHREDER
UNITED STATES MAGISTRATE JUDGE
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