Tiras et al v. Encompass Home and Auto Insurance Company et al
Filing
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MEMORANDUM AND ORDER granting 24 MOTION to Dismiss for Partial Dismissal of Plaintiffs' Original Petition.(Signed by Judge Keith P Ellison) Parties notified.(arrivera, )
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
JOE TIRAS AND GINA TIRAS,
Plaintiffs,
V.
ENCOMPASS HOME AND AUTO
INSURANCE COMPANY AND
DAVID JOSEPH KISH,
Defendants.
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CIV. NO. 4:10-cv-03266
MEMORANDUM & ORDER
Before the Court is Defendant Encompass Home and Auto Insurance Company’s
Motion for Partial Dismissal of Plaintiffs’ Original Petition (“Motion to Dismiss”). (Doc.
No. 24.) After considering the Motion to Dismiss, all responses and replies thereto, and
the applicable law, the Court determines that the Motion to Dismiss must be GRANTED.
I.
BACKGROUND
Joe Tiras and Gina Tiras (collectively, “Plaintiffs”) are owners of a Texas
Homeowners’ Insurance Policy (“the Policy”), issued by Encompass Home and Auto
Insurance Company (“Encompass”). After their property was damaged by Hurricane Ike,
Plaintiffs filed a claim with Encompass for reimbursement for the cost of repairs.
Plaintiffs allege that David Joseph Kish (“Kish”), who was assigned as the individual
adjuster on Plaintiffs’ claim, spent under thirty minutes investigating damage to the
property. Kish’s inspection was allegedly substandard, leading to a gross underpayment
of Plaintiffs’ claim. According to Plaintiffs, Encompass then wrongfully denied
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Plaintiffs’ claim for repairs to their property, even though such repairs were covered by
their Policy. Additionally, Plaintiffs aver, Encompass underpaid some of Plaintiffs’
claims by failing to provide full coverage for damages, or by “underscoping” the
damages during the investigation. Indeed, Plaintiffs argue, Encompass continues to delay
payment for damages to the property. Plaintiffs filed a lawsuit against Encompass and
Tiras (collectively, “Defendants”) in state court, alleging breach of contract, fraud,
conspiracy to commit fraud, various breaches of the Texas Insurance Code, and breach of
the duty of good faith and fair dealing. The case was removed pursuant to this Court’s
diversity jurisdiction.
Encompass now seeks to dismiss Plaintiffs’ non-contractual causes of action. In
its Motion to Dismiss, Encompass insists that Plaintiffs provide no factual allegations to
support their claims for damages for fraud, conspiracy to commit fraud, violations of the
Texas Insurance Code, and breach of the duty of good faith and fair dealing. Instead,
Encompass contends, Plaintiffs merely paraphrase statutory language or recite the
elements of their causes of action. Therefore, Encompass argues, these non-contractual
claims fail to meet the requirements of both Federal Rule of Civil Procedure 8 and 9(b),
and so should be dismissed pursuant to Rule 12(b)(6).
II.
LEGAL STANDARD
Federal Rule of Civil Procedure 8(a) requires that a plaintiff’s pleading include “a
short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.
R. Civ. P. 8(a)(2). If a plaintiff fails to satisfy Rule 8(a), a defendant may file a motion to
dismiss the plaintiff’s claims under Federal Rule of Civil Procedure 12(b)(6) for “failure
to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6); see also Bank
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of Abbeville & Trust Co. v. Commonwealth Land Title Ins. Co., No. 05-30976, 2006 WL
2870972, at *2 (5th Cir. Oct. 9, 2006) (citing 5 Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1203 (3d ed. 2004)). “To survive a Rule 12(b)(6)
motion to dismiss, a complaint ‘does not need detailed factual allegations,’ but must
provide the plaintiff’s grounds for entitlement to relief—including factual allegations that
when assumed to be true ‘raise a right to relief above the speculative level.’” Cuvillier v.
Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007)). That is, “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, 129 S.
Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570).
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.” Id. (citing
Twombly, 550 U.S. at 556). The plausibility standard is not akin to a “probability
requirement,” but asks for more than a sheer possibility that a defendant has acted
unlawfully. Id. A pleading need not contain detailed factual allegations, but must set
forth more than “labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550 U.S. at 555 (citation omitted).
Ultimately, the question for the court to decide is whether the complaint states a
valid claim when viewed in the light most favorable to the plaintiff. Shandong Yinguang
Chem. Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029, 1032 (5th Cir. 2010) (citing
In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)). The court must
accept well-pleaded facts as true, but legal conclusions are not entitled to the same
assumption of truth. Iqbal, 129 S. Ct. at 1950. The court should not “‘strain to find
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inferences favorable to the plaintiffs’” or “accept ‘conclusory allegations, unwarranted
deductions, or legal conclusions.’” R2 Investments LDC v. Phillips, 401 F.3d 638, 642
(5th Cir. 2005) (quoting Southland Sec. Corp. v. Inspire Ins. Solutions, Inc., 365 F.3d
353, 361 (5th Cir. 2004)).
Allegations of fraud, however, must meet the stricter standards of Federal Rule of
Civil Procedure 9(b). Rule 9(b) requires that “[i]n alleging fraud or mistake, a party must
state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P.
9(b). “‘At a minimum, Rule 9(b) requires allegations of the particulars of time, place, and
contents of the false representations, as well as the identity of the person making the
misrepresentation and what he obtained thereby.’” Benchmark Elec., Inc. v. J.M. Huber
Corp., 343 F.3d 719, 724 (5th Cir. 2003) (quoting Tel-Phonic Servs., Inc. v. TBS Int’l,
Inc., 975 F.2d 1134, 1139 (5th Cir. 1992)). The Fifth Circuit has explained that “Rule
9(b) requires ‘the who, what, when, where, and how’ [of the alleged fraud] to be laid
out.” Id. (quoting Williams v. WMX Techs., Inc., 112 F.3d 175, 179 (5th Cir. 1997)). “‘A
dismissal for failure to plead fraud with particularity under Rule 9(b) is treated as a
dismissal for failure to state a claim under Rule 12(b)(6).’” U.S. ex rel. Grubbs v.
Kanneganti, 565 F.3d 180, 185 n.8 (5th Cir. 2009) (quoting U.S. ex rel. Thompson v.
Columbia/HCA Healthcare Corp., 125 F.3d 899, 901 (5th Cir. 1997)).
Rule 9(b)’s particularity requirement is “supplemental to the Supreme Court’s
recent interpretation of Rule 8(a) requiring enough facts [taken as true] to state a claim to
relief that is plausible on its face.” Id. at 185 (quotations and footnote omitted). Thus
Rule 9(b) “requires only simple, concise, and direct allegations of the circumstances
constituting fraud, which after Twombly must make relief plausible, not merely
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conceivable, when taken as true.” Id. at 186 (internal quotations omitted). The
requirements of Rule 9(b) also “apply to all cases where the gravamen of the claim is
fraud even though the theory supporting the claim is not technically termed fraud.” Frith
v. Guardian Life Ins. Co. of Am., 9 F.Supp.2d 734, 742 (S.D. Tex. 1998) (quotations
omitted).
III.
ANALYSIS
The Court will first determine whether each claim requires Plaintiffs to meet the
heightened pleading requirements of Rule 9(b). Utilizing the applicable standard, the
Court will then analyze whether any of the non-contractual claims survives the Motion to
Dismiss. Ultimately, the Court concludes that none of Plaintiffs’ non-contractual claims
survives the Motion to Dismiss.
A. Fraud and Conspiracy to Commit Fraud
Plaintiffs allege that Defendants committed fraud and conspiracy to commit fraud.
According to Plaintiffs, Defendants’ representations concerned material facts. Absent
such representations, Plaintiffs claim, they would not have acted as they did.
Furthermore, Plaintiffs argue, Defendants knew their representations were false or made
their representations recklessly without any knowledge of their truth. Plaintiff then
allegedly acted in reliance upon the statements, resulting in injuries. In framing their
claim for conspiracy to commit fraud, Plaintiffs explain that Defendants were members
of a combination of two or more persons whose object was to accomplish an unlawful
purpose, or a lawful purpose by unlawful means. According to Plaintiffs, Defendants
committed an unlawful, overt act to further an object or course of action, resulting in
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injury to Plaintiffs. Plaintiffs also assert that Defendants’ acts or omissions constitute a
general business practice of Encompass.
Plaintiffs have failed to meet the heightened pleading demands of Rule 9(b) for
their fraud and conspiracy to commit fraud claims. Under Texas law, the elements of
fraud are (1) the defendant made a representation to the plaintiff; (2) the representation
was material; (3) the representation was false; (4) when the defendant made the
representation the defendant knew it was false or made the representation recklessly and
without knowledge of its truth; (5) the defendant made the representation with the intent
that the plaintiff act on it; (6) the plaintiff relied on the representation; and (7) the
representation caused the plaintiff injury. Potter, 607 F.3d at 1032. Plaintiffs do not
explain, however, what the “representations” were, let alone provide information as to the
time, place, and contents of those representations. Benchmark Elec., Inc., 343 F.3d at
724. As Plaintiffs do not meet the heightened pleading requirements, their fraud claim
must be dismissed. Similarly, for their conspiracy to commit fraud claim to survive,
Plaintiffs “must ‘plead with particularity the conspiracy as well as the overt acts … taken
in furtherance of the conspiracy.’” Kanneganti, 565 F.3d at 193 (quoting FC Inv. Group
LC v. IFX Markets, Ltd., 529 F.3d 1087, 1097 (D.C. Cir. 2008)). Plaintiffs recite the
elements of a conspiracy claim without providing particular details as to the overt acts
taken in furtherance of the conspiracy or the conspiracy itself. Therefore, Plaintiffs’
conspiracy to commit fraud claim fails.
B. The Texas Insurance Code
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Plaintiffs allege Defendants violated Texas Insurance Code §§ 541.060(a)(1),
541.060(a)(2)(A), 541.060(a)(3), 541.060(a)(7), 541.060(a)(4), 542.055, 542.056, and
542.058. The Court will review each section in turn.
i.
Texas Insurance Code § 541.060
Plaintiffs claim that Defendants violated multiple provisions of Texas Insurance
Code § 541.060. First, Plaintiffs claim that Defendants misrepresented to Plaintiffs
material facts relating to the coverage at issue, in violation of § 541.060(a)(1). That
provision states that “[i]t is an unfair method of competition or an unfair or deceptive act
or practice in the business of insurance to … misrepresent[] to a claimant a material fact
or policy provision relating to coverage at issue.” Tex. Ins. Code § 541.060(a)(1). The
gravamen of this claim is fraud, as it concerns reliance on material misrepresentations.
Potter, 607 F.3d at 1032. Therefore, Plaintiffs must meet the heightened pleading
requirements of Rule 9(b). Plaintiffs offer no details as to “‘the who, what, when, where,
and how’” of the misrepresentations. Benchmark Electronics, Inc., 343 F.3d at 724
(quoting Williams, 112 F.3d at 177). For example, Plaintiffs do not explain what the
misrepresentations were or how they distorted the material facts. Therefore, Plaintiffs’
claims for violations of § 541.060(a)(1) fail.
Plaintiffs’ other claims under § 541.060 need not meet the heightened pleading
requirements of Rule 9(b). Plaintiffs allege that Defendants violated § 541.060(a)(2)(A)
because they did not attempt to settle Plaintiffs’ claim in a fair manner, despite the fact
that they were aware of their liability. That section prohibits “failing to attempt in good
faith to effectuate a prompt, fair, and equitable settlement of … a claim with respect to
which the insurer’s liability has become reasonably clear.” Plaintiffs’ claim under §
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541(a)(2)(A) does not rest on allegations of fraud, as that section does not concern
reliance on material representations. Therefore Plaintiffs need only meet the pleading
requirements of Rule 8(a). Plaintiffs provide no facts supporting their allegations that
Defendants failed to effectuate a settlement in good faith, however. Therefore, Plaintiffs
do not state a plausible claim for relief under § 541(a)(2)(A).
Next, Plaintiffs argue that Defendants violated § 541.060(a)(3), which states that
“[i]t is an unfair method of competition or an unfair or deceptive act or practice in the
business of insurance to … fail[] to promptly provide to a policyholder a reasonable
explanation of the basis in the policy, in relation to the facts or applicable law, for the
insurer’s denial of a claim or offer of a compromise settlement of a claim.” Fraud is not
the gravamen of this claim, as it does not concern reliance on material
misrepresentations. Thus Plaintiffs do not need to meet the heightened pleading
requirements of Rule 9(b). Plaintiffs state that Defendants failed to offer adequate
compensation; did not explain why full payment was not available; did not communicate
that any future settlements or payments would be forthcoming to pay for the entire losses
covered under the Policy; and did not provide any explanation for their failure to
adequately settle Plaintiffs’ claim. Yet Plaintiffs offer no facts to support these
allegations. When viewed in the light most favorable to Plaintiffs, the Complaint does not
state a claim upon which relief can be granted. Plaintiffs’ claim under § 541.060(a)(3)
should be dismissed.
Plaintiffs also allege that Defendants failed to fully compensate Plaintiffs as
required according to the terms of the Policy, despite their failure to conduct a reasonable
investigation. Specifically, Plaintiffs assert, Defendants’ investigation was outcome-
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oriented, biased, unfair, and inequitable. As a consequence, Plaintiffs aver, Defendants
violated Texas Insurance Code § 541.060(a)(7). That section prohibits refusal to pay a
claim without conducting a reasonable investigation with respect to that claim. Plaintiffs
need not meet the requirements of Rule 9(b), as § 541.060(a)(7) is not substantively
based on fraud. Plaintiffs do not offer facts showing that Defendants’ investigation was
unreasonable, however. Therefore, Plaintiffs do not meet the requirements of Rule 8(a).
Plaintiffs’ claim under § 541.060(a)(7) does not survive the Motion to Dismiss.
Plaintiffs’ remaining claim under § 541.060, although not subject to the
requirements of Rule 9(b), does not survive the Motion to Dismiss. Plaintiffs allege that
Defendants failed to affirm or deny coverage of their claim within a reasonable time, in
violation of § 541.060(a)(4). This claim is not based on fraud, and therefore must be held
to only the standard of Rule 8(a). Yet Plaintiffs plead no facts suggesting that Defendants
failed to affirm or deny coverage within a reasonable time. Therefore, Plaintiffs’ claim
under § 541.060(a)(4) must be dismissed.
ii.
Texas Insurance Code § 542.055
Plaintiffs further allege that Encompass violated § 542.055, which concerns
receipt of notice of a claim. Specifically, Plaintiffs state that Defendants did not, within
the statutorily mandated time of receiving notice of Plaintiffs’ claim, timely acknowledge
Plaintiffs’ claim, begin an investigation of Plaintiffs’ claim, and request all information
reasonably necessary to investigate Plaintiffs’ claim. This provision does not rest on
substantive allegations of fraud, as it does not involve reliance on material
misrepresentations. Nonetheless, Plaintiffs fail to meet the lower pleading requirements
of Rule 8(a). Plaintiffs do not provide any facts supporting their conclusory assertions
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that Encompass did not timely acknowledge their claim or timely begin investigation of
their claim. Nor do Plaintiffs provide facts suggesting that Encompass failed to request all
information reasonably necessary to investigate Plaintiffs’ claim. Although their
Complaint need not contain detailed factual allegations, Plaintiffs must set forth more
than “labels and conclusions, and a formulaic recitation of the elements of a cause of
action will not do.” Twombly, 550 U.S. at 555 (citation omitted). Plaintiffs recite the
elements of § 542.055 without providing supporting facts that could give rise to a claim
under that provision. Therefore, Plaintiffs’ claims under § 542.055 must be dismissed.
iii.
Texas Insurance Code § 542.056
Plaintiffs claim that Encompass violated Texas Insurance Code § 542.056 by
failing to accept or deny Plaintiffs’ full and entire claim within the statutorily mandated
time of receiving all necessary information. As this provision does not require fraudulent
conduct, the stringent requirements of Rule 9(b) do not apply. Yet Plaintiffs have not
provided any facts to support a claim that Encompass did not accept or deny their claim
within the statutorily mandated time. Indeed, Plaintiffs provide no details as to the length
of time between their submissions and Defendants’ response. Therefore, Plaintiffs do not
state a claim upon which relief can be granted under § 542.056.
iv.
Texas Insurance Code § 542.058
Finally, Plaintiffs allege that Encompass violated Texas Insurance Code §
542.058, which concerns delays in payments of claims. Specifically, that section states
that “if an insurer, after receiving all items, statements, and forms reasonably requested
and required under Section 542.055, delays payment of the claim for a period exceeding
the period specified by other applicable statutes or, if other statutes do not specify a
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period, for more than 60 days, the insurer shall pay damages and other items as provided
by Section 542.060.” Tex. Ins. Code § 542.058(a). The gravamen of this section is not
fraud, as it requires only that a defendant wrongfully reject a claim. See Encompass
Office Solutions, Inc. v. Ingenix, Inc., 775 F.Supp.2d 938, 964 (E.D. Tex. 2011).
Therefore Plaintiffs need only meet the requirements of Rule 8(a). Plaintiffs state that
Encompass delayed payment of their claim “longer than allowed.” Indeed, Plaintiffs
allege that Encompass has still not paid their claim in full. Yet Plaintiffs have not
provided facts to support their conclusory allegations. Considering these allegations in
the light most favorable to Plaintiffs, they do not satisfy Rule 8(a).
C. Duty of Good Faith and Fair Dealing
Plaintiffs allege that Encompass breached its common law duty of good faith and
fair dealing. “An insurer has a common law duty to deal fairly and in good faith with its
insured in the processing and payment of claims.” Aleman v. Zenith Ins. Co., 343 S.W.3d
817, 822 (Tex.App-El Paso 2011) (citing Republic Ins. Co. v. Stoker, 903 S.W.2d 338,
340 (Tex. 1995)). An insurer breaches this duty if it denies a claim when it knows or
should know that it is reasonably clear the claim is covered. Id. (citing Universe Life Ins.
Co. v. Giles, 950 S.W.2d 48, 56 (Tex. 1997)). The duty is also breached if an insurer fails
to reasonably investigate a claim. Id. (citing Giles, 950 S.W.2d at 56). As fraudulent
conduct is not necessary to state a claim for breach of common law duty of good faith
and fair dealing, Plaintiffs need only meet the requirements of Rule 8(a). Plaintiffs allege
that Encompass failed to adequately and reasonably investigate and evaluate Plaintiffs’
claim, even though they knew or should have known by the exercise of reasonable
diligence that its liability was reasonably clear. Yet Plaintiffs plead no facts showing
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grounds for their entitlement to relief. Therefore, Plaintiffs’ claims for breach of the
common law duty of good faith and fair dealing must be dismissed.
IV.
CONCLUSION
The Court concludes that Plaintiffs’ claims for fraud, conspiracy to commit fraud,
and violations of § 541.060(a)(1) of the Texas Insurance Code must be dismissed because
they do not meet the heightened pleading requirements of Rule 9(b). Plaintiffs’ remaining
claims under the Texas Insurance Code, as well as their claims for violation of the duty of
good faith and fair dealing, are dismissed because they fail to satisfy Rule 8(a). For the
above stated reasons, Encompass’ Motion to Dismiss is GRANTED.
IT IS SO ORDERED.
SIGNED on this the 17th day of November, 2011.
KEITH P. ELLISON
UNITED STATES DISTRICT COURT JUDGE
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