City of Orem et al v. Essex Insurance Company
MEMORANDUM DECISION and ORDER granting 64 Defendant's Motion to Dismiss Third Case of Action. Plaintiffs have fourteen days from the date of this Order to amend their complaint. Signed by Judge Jill N. Parrish on 10/27/2017. (blh)
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH
CITY OF OREM and JAMES LAURET,
MEMORANDUM DECISION AND
ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS THIRD CAUSE
EVANSTON INSURANCE COMPANY,
Case No. 2:16-cv-00425-JNP-PMW
Judge Jill N. Parrish
Magistrate Judge Paul M. Warner
Before the Court is Defendant’s Motion to Dismiss Third Cause of Action (ECF No. 64).
For the reasons set forth below, the motion is GRANTED. Plaintiffs’ third cause of action is
dismissed without prejudice. Plaintiffs have fourteen days from the date of this Order to amend
This is an insurance case. Plaintiffs City of Orem and James Lauret (collectively,
“Orem”) were sued when two minor children were injured at the 2014 City of Orem Summerfest
Parade. Orem sought indemnifications from its insurer, Evanston Insurance Company (formerly
known as Essex Insurance Company). Evanston refused to indemnify Orem, citing an
endorsement that Evanston claims is part of Orem’s policy. Orem claims that the endorsement is
not part of the policy and brought claims against Evanston for declaratory relief, breach of
contract, and breach of the implied covenant of good faith and fair dealing. Evanston has now
moved to dismiss Orem’s third cause of action, breach of the implied covenant of good faith and
fair dealing, on the grounds that Orem has failed to allege that Evanston denied coverage in bad
faith. The Court agrees and therefore dismisses Orem’s third cause of action without prejudice.
FACTUAL ALLEGATIONS 1
Evanston issued a general liability insurance policy (the “Policy”) to Orem for the
purpose of providing various coverages for the 2014 Summerfest Parade. See Compl. ¶ 8. The
Policy requires that Evanston defend lawsuits and indemnify Orem from liability for occurrences
within the scope of the Policy. See Compl. ¶ 10.
During the 2014 Summerfest Parade, two children were injured. Compl. ¶ 7. The
children’s parents sued Orem based on the injuries. Compl. ¶ 6. Orem tendered the lawsuit to
Evanston. Compl. ¶ 11. But Evanston denied coverage. Compl. ¶ 12.
Evanston denied coverage based on an exclusion that Orem claims “was not part of the
[P]olicy.” Compl. ¶ 24. The endorsement is titled the Special Event and Spectator Liability
Exclusions (the “Endorsement”). ECF No. 73-5 at 3. The Endorsement provides, in relevant part:
This insurance does not apply to “bodily injury,” “property damage,” or “personal
and advertising injury”:
Arising out of any charges or allegations of negligent hiring, training,
placement or supervision;
Arising out of participating, in any capacity, in a demonstration,
exhibition, contest, competition, show, race, performance, game or other
special event . . . .
ECF No. 73-5 at 3.
Orem attached additional evidence to its Opposition in what appears to be an attempt to convert
Evanston’s motion to dismiss into a motion for partial summary judgment. The Court, however,
needs only to rely on Orem’s complaint and the relevant policy language for the purposes of this
motion. See Prince v. Philpot, 420 F.3d 1158, 1167 (10th Cir. 2005) (“[W]hen a district court
relies on material from outside of the pleadings, the court converts the motion to dismiss into a
motion for summary judgment . . . , [a]nd when such a conversion occurs, the district court must
provide the parties with notice so that all factual allegations may be met with countervailing
evidence.”). Similarly, the Court disregards the additional facts included in Evanston’s statement
of facts and Orem’s responses to those facts.
In support of the third cause of action, Orem alleges that “[Evanston] has breached the
covenant of good faith and fair dealing by, among other things, denying coverage based upon an
endorsement which was not part of the [P]olicy.” Compl. ¶ 24. Orem fails to allege any facts
relevant to the determination of whether Evanston breached the covenant of good faith and fair
dealing. See generally Compl. For example, Orem does not allege that Evanston (1) did not
diligently investigate the claim, (2) did not fairly evaluate the claim, or (3) did not act promptly
and reasonably after evaluation of the claim. See generally Compl.
Under Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss a
claim when the plaintiff fails to state a claim upon which relief can be granted. The court’s
function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties may
present at trial but to “assess whether the plaintiff’s complaint alone is legally sufficient to state a
claim for which relief may be granted.” Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th
Cir. 2003) (quoting Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th
“A court reviewing the sufficiency of a complaint presumes all of plaintiff’s factual
allegations are true and construes them in the light most favorable to the plaintiff.” Hall v.
Bellmon, 935 F.2d 1106, 1108 (10th Cir. 1991). “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.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the
plaintiff has alleged facts that allow “the court to draw [a] reasonable inference that the
defendant is liable for the misconduct alleged.” Id.
To determine whether a complaint contains sufficient factual matter, a court carries out a
two-step analysis. First, the court identifies “the allegations in the complaint that are not entitled
to the assumption of truth,” which includes allegations that are legal conclusions, bare assertions,
or merely conclusory. Id. at 679-81. Second, the court considers the remaining factual allegations
that are entitled to the assumption of truth “to determine if they plausibly suggest an entitlement
to relief.” Id. at 681. If the allegations state a plausible claim for relief, the plaintiff’s claim
survives the motion to dismiss. Id. at 679. A complaint is insufficient if it contains “naked
assertion[s]” devoid of “further factual enhancement.” Id. at 678.
A. WHETHER OREM HAS STATED A CLAIM FOR BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING
In Beck v. Farmers Insurance Exchange, the Utah Supreme Court identified three
minimal duties that “the implied obligation of good faith performance contemplates,” namely
that “ the insurer will diligently investigate the facts to enable it to determine whether a claim
is valid,  will fairly evaluate the claim, and  will thereafter act promptly and reasonably in
rejecting or settling the claim.” 701 P.2d 795, 801 (Utah 1985).
Here, Orem has failed to allege sufficient facts to plausibly establish that Evanston
breached the covenant of good faith and fair dealing. Orem’s conclusory allegations suggest that
Evanston acted in bad faith. But Orem’s claim to relief must be based not upon conclusory
allegations but upon well-pleaded factual allegations. See Robbins v. Okla. ex rel. Dep’t of
Human Servs., 519 F.3d 1242, 1247 (10th Cir. 2008). Indeed, if the allegations are “so general
that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs ‘have not
nudged their claims across the line from conceivable to plausible.’” Id. (quoting Twombly, 550
U.S. at 570).
Orem’s allegations supporting its third cause of action essentially amount to three
assertions: (1) the Endorsement was not part of the Policy; (2) Evanston relied on the
Endorsement to deny coverage; and (3) reliance on the Endorsement was unfounded. But none of
these allegations go to elements necessary to establish a claim for breach of the implied covenant
of good faith and fair dealing. The complaint is devoid of facts showing how Evanston acted
unreasonably, how Evanston’s evaluation was deficient or untimely, or how Orem’s insurance
claim was not reasonably debatable.
The only factual allegation supporting Orem’s claim is that Evanston relied on the
Endorsement to deny coverage. But the Court cannot find that this plausibly suggests that
Evanston acted in bad faith. Doing so would be tantamount to holding that a plaintiff plausibly
establishes that a defendant acted in bad faith whenever the plaintiff alleges that a denial of
coverage was erroneous. Admittedly, sometimes the reason for denial may be so blatantly
improper that a court can infer that the insurance company acted in bad faith. But that is not the
case here. There is nothing about reliance on the Endorsement that strikes the Court as
necessarily unreasonable. Without more, Orem fails to nudge its claim across the line from
conceivable to plausible.
Accordingly, the Court finds that Orem has failed to allege sufficient facts to plausibly
establish that Evanston breached the implied covenant of good faith and fair dealing. See
Scheffler v. Am. Republic Ins. Co., No. 11-cv-0760, 2012 WL 602187, at *3 (N.D. Okla. Feb. 23
2012) (holding that plaintiff failed to state a claim for breach of the implied covenant of good
faith and fair dealing because her claim was “based solely on the fact that she was not paid the
insurance proceeds under the policy”).
B. WHETHER THE COURT SHOULD GRANT LEAVE TO AMEND
Generally, leave to amend should be granted. See Fed. R. Civ. P. 15(a)(2). However,
leave to amend may be denied when there is a showing of “undue delay, undue prejudice to the
opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments
previously allowed, or futility of amendment.” Bylin v. Billings, 568 F.3d 1224, 1229 (10th Cir.
2009) (quoting Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993)).
Evanston has not argued that Orem’s third cause of action should be dismissed with
prejudice, and the Court is not convinced that amendment would be futile. The Court reminds
Orem that it must plead facts, not legal conclusions, to support its third cause of action. A
complaint that simply asserts legal conclusions, like the one rejected by Judge Warner, will not
suffice. See ECF No. 23 at 6 (holding that Orem’s proposed amended complaint [ECF No. 18-1]
failed to state a claim for breach of the implied covenant of good faith and fair dealing).
CONCLUSION AND ORDER
For the reasons set forth above, Defendant’s Motion to Dismiss Third Cause of Action is
GRANTED. Plaintiffs’ third cause of action is dismissed without prejudice. Plaintiffs have
fourteen days from the date of this Order to amend their complaint.
Signed October 27, 2017
BY THE COURT
Jill N. Parrish
United States District Court Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?