McKinney Square Properties No 1 Ltd v. Seneca Insurance Company Inc et al

Filing 24

MEMORANDUM OPINION AND ORDER: Defendant's 12(b)(6) 10 Motion to Dismiss Plaintiff's First Amended Complaint is GRANTED in part, and DENIED in part. The Motion is GRANTED with respect to Plaintiff's claim for negligent misrepresentati on, and that claim is DISMISSED without prejudice. Plaintiff may file a second amended complaint within fourteen days of this Memorandum Opinion and Order adding additional facts in support of its negligent misrepresentation claim, if it can. In all other respects, the Motion is DENIED. (Ordered by Chief Judge Barbara M.G. Lynn on 3/13/2017) (sss)

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
MCKINNEY SQUARE PROPERTIES
NO. 1 LTD,
Plaintiff,
v.
SENECA INSURANCE COMPANY, INC.,
Defendant.

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Civil Action No. 3:16-cv-00956-M

MEMORANDUM OPINION AND ORDER
Before the Court is a “12(b)(6) Motion to Dismiss Plaintiff’s First Amended Complaint”
[Docket Entry #10], filed by Defendant Seneca Insurance Company, Inc. For the following
reasons, the Motion is GRANTED in part, and DENIED in part.
Background
This is an insurance dispute arising from Defendant’s handling of Plaintiff’s claim for
property damage. In its First Amended Complaint, which is the live pleading in this action,
Plaintiff alleges that Defendant insured a commercial apartment complex owned by Plaintiff in
Dallas, Texas (the “Property”), for the period of August 23, 2014 to August 23, 2015. Pl. First
Am. Compl. [ECF #8] at ¶¶6-7. Plaintiff alleges that the roof of the Property was damaged by
hail that occurred during a storm on or about June 9, 2015. See id. at ¶12. Plaintiff further alleges
that it filed an insurance claim under the policy issued by Defendant, as soon as it became aware
of the damage to the roof by virtue of a leak that occurred in the ceiling of an upper floor
apartment. Id. at ¶13. Ultimately, Defendant denied Plaintiff’s claim. See id. at ¶¶ 21, 27-28.

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Plaintiff alleges that Defendant failed to properly investigate, handle, and pay Plaintiff’s
claims under the policy. In particular, Plaintiff alleges that Defendant refused to provide
Plaintiff’s representatives with key information pertaining to Plaintiff’s claim, including the
names of the individuals who inspected the Property and a copy of the engineering report
conducted on Defendant’s behalf that provided the basis for Defendant’s denial of the claim. Id.
at ¶¶19-20, 23. Plaintiff also alleges that Defendant’s agents negligently damaged roof tiles
during the inspection of the Property, and failed to advise Plaintiff of the damage. Id. at ¶25.
Plaintiff initially filed this action in the 116th District Court of Dallas County, Texas,
asserting only a negligence claim. Defendant timely removed the case to federal court on the
basis of diversity jurisdiction. See Rem. Not. [ECF #1] at ¶3. Plaintiff then filed its First
Amended Complaint asserting claims against Defendant for breach of contract, breach of
warranty, breach of the covenant of good faith and fair dealing, negligence, negligent
misrepresentation, and fraud, as well as for violations of the DTPA and the Texas Insurance
Code. See id. at ¶¶ 31-45, 50. Defendant now moves under Federal Rule of Civil Procedure
12(b)(6) to dismiss Plaintiff’s claims for negligence and negligent misrepresentation. 1 The
Motion has been fully briefed, and is ripe for determination.
Legal Standards
To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must have pled “a short and
plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
In analyzing a motion to dismiss for failure to state a claim under Rule 12(b)(6), the Court
accepts all well-pleaded facts as true and views them in the light most favorable to the plaintiff.

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Defendant timely filed an answer with respect to the remaining claims asserted in
Plaintiff’s First Amended Complaint.
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Thompson v. City of Waco, 764 F.3d 500, 502 (5th Cir. 2014); In re Katrina Canal Breaches
Litig., 495 F.3d 191, 205 (5th Cir. 2007). The Court will not, however “accept as true conclusory
allegations, unwarranted factual inferences, or legal conclusions.” Great Lakes Dredge & Dock
Co. LLC v. La. State, 624 F.3d 201, 210 (5th Cir. 2010).
A “complaint must contain sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.” Howe v. Yellowbook, USA, 840 F. Supp. 2d 970, 975 (N.D.
Tex. 2011) (Lynn, J.) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is
plausible on its face “when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Lone Star Nat.
Bank, N.A. v. Heartland Payment Sys., Inc., 729 F.3d 421, 423 (5th Cir. 2013) (quoting Highland
Capital Mgmt., L.P. v. Bank of Am., Nat’l Ass’n, 698 F.3d 202, 205 (5th Cir. 2012)). “Plausible”
does not mean “probable,” but it asks for “more than a sheer possibility that a defendant has
acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at
556).
Claims sounding in fraud must also satisfy the heightened pleading standard set out in
Federal Rule of Civil Procedure 9(b), which requires a party “alleging fraud or mistake . . . [to]
state with particularity the circumstances constituting fraud or mistake.” United States ex rel.
Grubbs v. Kanneganti, 565 F.3d 180, 185 (5th Cir. 2009) (internal citation omitted). The Fifth
Circuit has applied the heightened pleading requirement of Rule 9(b) to both fraud and negligent
misrepresentation claims, when the claims are based on the same alleged facts. Benchmark
Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir. 2003). The Fifth Circuit has
interpreted Rule 9(b) to require, at a minimum, that a plaintiff set forth the “who, what, when,
where, and how” of the alleged fraud. United States ex rel. Thompson v. Columbia/HCA

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Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1997) (internal citation and quotation marks
omitted). However, the Fifth Circuit has also stated that the “time, place, contents, and identity
standard is not a straitjacket for Rule 9(b),” concluding that Rule 9(b) is context-specific and
flexible. Grubbs, 565 F.3d at 185.
Analysis
Defendant first argues that Plaintiff’s First Amended Complaint fails to state a claim for
negligence because Texas law does not recognize a cause of action against an insurance
company for negligent claims handling. See Def. Mot. at 3. Defendant’s argument is correct as a
matter of law. See Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456, 460 (5th Cir.
1997). The Fifth Circuit has succinctly summarized Texas law on this issue:
Although the law has imposed a duty on the insurer to act in good
faith and deal fairly with the insured, there is no duty beyond the
contract itself. In order for a tort duty to arise out of a contractual
duty, i.e. negligent failure to perform a contract, the liability must
arise “independent of the fact that a contract exists between the
parties.” If a defendant’s conduct is actionable only because it
breaches the parties’ agreement . . ., the claim is solely contractual
in nature. In fact, in absence of the duty to act in good faith and deal
fairly the only other duty imposed on an insurance company, under
Texas law, is the duty to exercise ordinary care and prudence in
considering an offer of settlement within the policy limits. In
essence, Texas law does not recognize a cause of action for
negligent claims handling.
Id. (internal citations omitted). Plaintiff argues, however, that its negligence claim does not arise
out of Defendant’s adjustment or acceptance of its insurance claim. Plaintiff contends that its
negligence claim is independent of the insurance contract, and instead arises out of the failure of
one of Defendant’s agents to use ordinary care when the agent was inspecting the roof of the
Property. Specifically, the First Amended Complaint alleges that “during its investigation of
Plaintiff’s tile roof, SENECA and or their inspectors, agents, [and] engineers, damaged tiles to

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Plaintiff’s roof and failed to disclose said damage.” Pl. First Am. Compl. at ¶25. The First
Amended Complaint further alleges that Defendant’s negligence resulted in property damages
and economic damages that are beyond the contractual damages recoverable under the insurance
policy at issue. Id. at ¶28. The nature of Plaintiff’s alleged damages is significant to determining
whether its claim sounds in contract or tort. Under Texas law, “[w]hen the only loss or damage is
to the subject matter of the contract, the plaintiff’s action is ordinarily on the contract.” United
Services Auto. Ass’n v. Pennington, 810 S.W.2d 777, 783 (Tex. App. 1991). Defendant does not
dispute that Plaintiff’s allegation that Defendant’s agent negligently damaged tiles on Plaintiff’s
roof is independent of the insurance contract and sounds in tort. The Court determines that
Plaintiff’s First Amended Complaint alleges sufficient facts to state a claim for negligence with
respect to its allegations regarding Defendant’s agent’s conduct of the inspection, and the alleged
damage caused to Plaintiff’s roof tiles. The Court therefore DENIES Defendant’s Motion with
respect to Plaintiff’s negligence claim for alleged damage to its roof tiles.
The Court comes to the opposite conclusion with respect to Plaintiff’s claim for negligent
misrepresentation. Rule 9(b)’s heightened pleading standard applies to fraud and negligent
misrepresentation claims where, as here, those claims are based on the same alleged facts.
Benchmark Elecs., 343 F.3d at 724. Indeed, Plaintiff expressly concedes that Rule 9(b) applies to
its negligent misrepresentation claim. Pl. Resp. [ECF #13] at ¶25. Plaintiff does not dispute that
the First Amended Complaint fails to identify any specific statements made by Defendant or one
of its agents, or explain how the allegedly false statements were negligently made. Plaintiff also
does not dispute that its First Amended Complaint fails to identify any specific agent who made
an alleged misrepresentation. Plaintiff only generally alleges that Defendant misrepresented the
existence of coverage under the insurance policy at issue. Pl. Compl.at ¶19.e. This allegation is

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not sufficient to satisfy the time, place, contents, and identity standard of Rule 9(b). Accordingly,
Defendant’s Motion is GRANTED with respect to Plaintiff’s claim for negligent
misrepresentation.
Conclusion
For the reasons stated, Defendant’s 12(b)(6) Motion to Dismiss Plaintiff’s First Amended
Complaint is GRANTED in part, and DENIED in part. The Motion is GRANTED with respect
to Plaintiff’s claim for negligent misrepresentation, and that claim is DISMISSED without
prejudice. Plaintiff may file a second amended complaint within fourteen days of this
Memorandum Opinion and Order adding additional facts in support of its negligent
misrepresentation claim, if it can.
In all other respects, the Motion is DENIED.
SO ORDERED.
March 13, 2017.
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BARBARA M.G. LYNN
CHIEF JUDGE

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