Soyoola v. Oceanus Insurance Company

Filing 60

ORDER granting in part and denying in part Dr. Soyoola's 33 MOTION for Leave to File Amended Complaint; granting in part with respect to the breach of contract, fraud, false and deceptive practices, and punitive damages claims arising under the Policy, and denying with respect to the fraud, false and deceptive practices, and punitive damages claims arising under the Tail Policy; directing the plaintiff to file his amended complaint within 14 days of the date of this Order; directing the Clerk to post a copy of this published opinion on the court's website, www.wvsd.uscourts.gov. Signed by Judge Joseph R. Goodwin on 12/11/2013. (cc: attys; any unrepresented party; ) (tmh)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION

EMMANUEL O. SOYOOLA,
Plaintiff,
v.

CIVIL ACTION NO. 2:13-cv-08907

OCEANUS INSURANCE COMPANY, et al.,
Defendants.
ORDER
Pending before the court is Emmanuel O. Soyoola’s Motion for Leave to File Amended
Complaint [Docket 33]. This motion is ripe for review. For the reasons stated below, the motion
[Docket 33] is GRANTED in part and DENIED in part.
I.

Background
This case arises out of an insurance coverage dispute between Oceanus Insurance

Company (“Oceanus”), the insurer, and Dr. Emmanuel O. Soyoola, the insured. Oceanus contends
the Liability Risk Retention Act of 1986 preempts Dr. Soyoola’s state law claims. Dr. Soyoola
responds that his claims are not preempted. However, even if his claims fall within the scope of the
Liability Risk Retention Act, Dr. Soyoola argues they fall within its exceptions.
A. Factual Background
Dr. Soyoola is a citizen of Georgia. (Compl. [Docket 1-2], ¶ 1). He practiced as an
obstetrician and gynecologist in Logan County, West Virginia. (Id. ¶ 2). Oceanus is a risk retention
insurance group. 1 Oceanus is chartered in South Carolina, where it issued Dr. Soyoola a “claims

1

A risk retention group is a liability insurer that is owned by its insureds or “members”. See 15 U.S.C. 3901(a)(4).
Members of a risk retention group must be in the same industry and share similar risk exposure. See id.

made” 2 medical malpractice insurance policy (“the Policy”). (Id. ¶¶ 8-9). The Policy covered
claims arising from Dr. Soyoola’s practice in West Virginia. (Id. ¶ 9). The Policy had a limit of $1
million per claim. (Id.). In August 2009, Oceanus declined to renew the Policy. (Id. ¶ 10). Instead,
Oceanus issued Dr. Soyoola tail coverage for $250,000 (“the Tail Policy”). (Id. ¶ 13). According to
Dr. Soyoola, Oceanus failed to offer him $1 million in tail coverage, with amortized premiums, as
required by West Virginia Code § 33-20D-3(a). (See id. ¶ 10). In addition, Oceanus did not tell Dr.
Soyoola that if he took less than $1 million in tail coverage, he could not benefit from West
Virginia’s statutory caps on non-economic damages. (Id. ¶ 12).
B. Procedural Background
Currently, Dr. Soyoola is being sued for medical malpractice (“McNeely action”). (Id. ¶
15). After Oceanus received notice of the action, it provided defense to Dr. Soyoola. (Id.).
However, Oceanus told Dr. Soyoola that he only had $250,000 in coverage for the claim. (Id.). Dr.
Soyoola requested that Oceanus agree to resolve the claim against Dr. Soyoola. (Id. ¶ 17).
However, Oceanus refused a $1 million settlement offer from the plaintiff. (Id.).
Due to Oceanus’s alleged failure to comply with West Virginia law, Dr. Soyoola sued
Oceanus in West Virginia state court. (See generally id.). Dr. Soyoola alleged three claims against
Oceanus: (1) breach of contract arising from Oceanus’s failure to comply with West Virginia Code
§ 33-20D-3; (2) declaratory judgment for the full amount required under West Virginia Code §
33-20D-3; and (3) misleading representations under the Unfair Trade Practices Act, West Virginia
Code § 33-11-1. (Id. ¶¶ 20-28).

2

A “claims made” policy “means a policy which covers claims which are reported during the policy period, meet the
provisions specified by the policy, and are for an incident which occurred during the policy period, or occurred prior to
the policy period, as specified by the policy.” W. Va. Code § 33-20D-2(b).

2

In the instant motion, Dr. Soyoola seeks to add several factual allegations in his proposed
complaint. First, the proposed complaint states that, before the Policy expired, Dr. Soyoola
notified Oceanus of an occurrence, which resulted in the McNeely action. (Am. Compl. [Docket
33-2], ¶¶ 10-11). Second, the proposed complaint alleges Oceanus was an unauthorized insurer
when it issued the Policy to Dr. Soyoola in August 2004. (Id. ¶ 6). Finally, the proposed complaint
asserts that Oceanus’s license application, registration, and other sworn statements indicated that
Oceanus agreed to comply with all applicable West Virginia insurance laws. (Id. ¶¶ 13-15). In
addition to the factual allegations, the proposed complaint alleges three additional counts: Count
IV (false or deceptive practices), Count V (fraud), and Count VI (punitive damages). (Id. ¶¶
27-54). The complaint also alleges a breach of contract claim arising from Oceanus’s failure to
provide coverage for the McNeely action under the Policy. (Id. ¶ 19).
II.

Legal Standard
Rule 15(a)(2) of the Federal Rules of Civil Procedure provides that, after time for

amendment as a matter of course has passed, leave of court must be obtained to amend a pleading.
The rule provides that a court should freely give leave to amend “when justice so requires.” Fed. R.
Civ. P. 15(a)(2). “The law is well settled that leave to amend a pleading should be denied only
when the amendment would be prejudicial to the opposing party, there has been bad faith on the
part of the moving party, or the amendment would be futile. . . . Delay alone is an insufficient
reason to deny leave to amend. Rather, the delay must be accompanied by prejudice, bad faith, or
futility.” Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th Cir. 1999) (internal citations and
quotation marks omitted). An amendment is futile if it would fail to survive a motion to dismiss.
See Perkins v. United States, 55 F.3d 910, 917 (4th Cir. 1995).

3

III.

Discussion
The determinative issue in this case is whether the Liability Risk Retention Act (“LRRA”)

preempts Dr. Soyoola’s claims arising from Oceanus’s violation of West Virginia Code §
33-20D-3. For the reasons stated below, I FIND the LRRA preempts § 33-20D-3. Claims
premised on a violation of § 33-20D-3 must fail because this statute is inapplicable to Oceanus.
Therefore, I deny amendment to add those claims. However, I FIND the LRRA does not preempt
Dr. Soyoola’s breach of contract, fraud, and false and deceptive practices claims arising under the
Policy. I permit amendment to add those claims.
A. Federal Preemption Law
Federal preemption originates from the Constitution’s Supremacy Clause. See U.S. Const.
art. VI, cl. 2. 3 In addressing a preemption issue, the court’s first task is to determine whether
Congress intended to preempt. See California Fed. Savings & Loan Ass’n, 479 U.S. 272, 281
(1978). Intent to preempt can manifest itself in three forms: field preemption, express preemption,
and conflict preemption. See H&R Block E. Enters., v. Raskin, 591 F.3d 718, 722 (4th Cir. 2010).
Field preemption occurs when the “federal scheme of regulation of a defined field is so pervasive
that Congress must have intended to leave no room for the states to supplement it[.]” City of
Charleston, S.C., v. A Fisherman’s Best Inc., 310 F.3d 155, 169 (4th Cir. 2002). Express
preemption arises when “Congress expressly declares its intent to preempt state law.” Pinney v.
Nokia, Inc., 402 F.3d 430, 453 (4th Cir. 2005). Finally, conflict preemption occurs when “state law
stands as an obstacle to the accomplishment and execution of the full purposes and objectives of
Congress.” Hillsborough Cnty., Fla. v. Automated Med. Labs., Inc., 471 U.S. 707, 713 (1985)
3

“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the
supreme Law of the Land . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”
U.S. Const. art. VI, cl. 2.

4

(internal quotation marks omitted). Conflict preemption can also arise when “compliance with
both federal and state regulations is a physical impossibility[.]” Id.
Once Congress’s intent to preempt is determined, the focus turns to the scope of that
preemption. See Duvall v. Bristol-Myers-Squibb Co., 103 F.3d 324, 328 (4th Cir. 1996). Two
presumptions guide this inquiry. See id. First, “‘the purpose of Congress is the ultimate
touchstone’ in every preemption case.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996) (quoting
Retail Clerks v. Schermerhorn, 375 U.S. 96, 103 (1963)). Second, a court starts “with the basic
assumption that Congress did not intend to displace state law.” Maryland v. Louisiana, 451 U.S.
725, 746 (1981). “This presumption is strongest when Congress legislates ‘in a field which the
States have traditionally occupied.’” S. Blasting Servs., Inc. v. Wilkes Cnty., N.C., 288 F.3d 584,
590 (4th Cir. 2002) (quoting Medtronic, Inc., 518 U.S. at 485).
Insurance is one of those traditional areas. See generally FMC Corp. v. Holliday, 498 U.S.
52, 53 (1990). To preserve states’ traditional authority in this area, Congress enacted the
McCarran-Ferguson Act, which states that a federal law must explicitly indicate it is preempting
state insurance law. See 15 U.S.C. § 1012 (“No Act of Congress shall be construed to invalidate,
impair, or supersede any law enacted by any State for the purpose of regulating the business of
insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to
the business of insurance . . . .” (emphasis added)). For a state insurance law to be valid despite a
relevant federal scheme, “(1) the state law in question must be enacted for the purpose of
regulating the business of insurance; (2) the federal law must not be specifically related to the
business of insurance; and (3) the federal law must invalidate, impair or supersede the state law in

5

question.” Am. Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 230-31 (4th Cir.
2004).
B. The Liability Risk Retention Act of 1986
In 1981, to address rising premiums for products liability insurance, Congress enacted the
Products Liability Risk Retention Act (“PLRRA”). H.R. Rep. 97-190, at 4, reprinted in 1981
U.S.C.C.A.N. 1432, 1432 (hereinafter “H.R. Rep. 97-190”). In passing this legislation, Congress
recognized that risk retention groups allowed “product manufacturers to purchase insurance on a
group basis at more favorable rates or to self-insure through insurance cooperatives called ‘risk
retention groups.’” Id.
However, risk retention groups faced difficulties in providing insurance nationwide.
Normally, an insurer must obtain a license and comply with the regulations of every state it seeks
to do business. See Vonda Mallicoat Laughlin, State Laws Restricting the Operation of Risk
Retention Groups-Necessary Protection or Illegal Regulation?, 60 Drake L. Rev. 67, 68 (2011).
See generally Baird Webel, Cong. Research Serv., RL 32176, The Risk Retention Acts:
Background and Issues 2 (2003). This could mean complying with a myriad of state regulations to
provide insurance nationwide. See generally Webel, supra, at 2.
Under the PLRRA, as long as it complied with the regulation of its chartering state, a risk
retention group could provide products liability insurance nationwide, without submitting to the
regulation of non-chartering states. Nat’l Warranty Ins. Co. v. Greenfield, 214 F.3d 1073, 1075
(9th Cir. 2000). Thus, the objective of the PLRRA was to promote “the efficient operation of risk
retention groups by eliminating the need for compliance with numerous non-chartering state

6

statutes that, in the aggregate, thwart the interstate operation [of] . . . product liability risk retention
groups.” Id. (quoting H.R. Rep. No. 97-190, at 12).
In 1986, Congress enacted the LRRA, amending the PLRRA. See Pub. L. 99-563, 100 Stat.
3170 (codified as amended at 15 U.S.C. § 3901-06). The LRRA extended the protections of the
PLRRA to all types of insurance offered by risk retention groups, not just products liability
insurance. Mears Transp. Grp. v. Florida, 34 F.3d 1013, 1017 (11th Cir. 1994). However, in
response to the increased scope of the LRRA, Congress also created certain exemptions to the
law—areas in which the states could regulate non-resident risk retention groups. The statute
provides in relevant part:
Except as provided in this section, a risk retention group is exempt from any
State law, rule, regulation, or order to the extent that such law, rule, regulation, or
order would—
(1) make unlawful, or regulate, directly or indirectly, the operation of a risk
retention group except that the jurisdiction in which it is chartered may regulate the
formation and operation of such a group and any State may require such a group
to—
(A) comply with the unfair claim settlement practices law of the State;
...
(G) comply with any State law regarding deceptive, false, or fraudulent acts
or practices, except that if the State seeks an injunction regarding the
conduct described in this subparagraph, such injunction must be obtained
from a court of competent jurisdiction . . . .

15 U.S.C. §§ 3902(a)(1)(A), (G) (emphasis added).
In sum, the LRRA creates a “tripartite scheme.” Nat’l Home Ins. Co. v. State Corp.
Comm’n of Com. of Va., 838 F. Supp. 1104, 1110 (E.D. Va. 1993). The LRRA creates the federal
framework in which chartering and non-chartering states may regulate risk retention groups. Id.
Under the LRRA, a risk retention group is primarily governed by its chartering state’s regulations.
7

Id. “Only the chartering jurisdiction may directly regulate the formation and every day operations
of a risk retention group.” Id. A non-chartering state may regulate a risk retention group, but only
in several discrete areas as identified by the LRRA. See id. at 1111.
C. Analysis of the Preemption Issues
i. The Liability Risk Retention Act Expressly Preempts Most State
Insurance Laws Regulating Risk Retention Groups
Congress expressly declared its intent to preempt state insurance laws regulating risk
retention groups. Section 3902(a)(1) clearly states that the LRRA preempts any state law or
regulation that would “make unlawful, or regulate, directly or indirectly, the operation of a risk
retention group[.]” 15 U.S.C. § 3902(a)(1) (emphasis added). The legislative history of the LRRA
further confirms this conclusion. The very purpose of the LRRA was to allow risk retention groups
to operate nationwide under the regulation of one jurisdiction, rather than fifty-one jurisdictions.
See H.R. Rep. No. 97-190, at 12; Attorneys’ Liab. Assurance Soc’y, Inc. v. Fitzgerald, 174 F.
Supp. 2d 619, 635 (W.D. Mich. 2001) (“However, the LRRA was designed not only to prevent
discriminatory treatment of non-resident risk retention groups, but also to preempt regulation of
risk retention groups by states other than the chartering state.” (citations omitted)); see also Webel,
supra, at 5.
While the Fourth Circuit has not addressed whether the LRRA explicitly preempts state
insurance laws, other circuits examining the LRRA’s framework and history conclude that the
LRRA preempts most state insurance laws. See Nat’l Warranty Ins. Co. v. Greenfield, 214 F.3d
1073, 1077 (9th Cir. 2000) (“Even with a general presumption that insurance law should ordinarily
be regulated under state law, as reinforced by the McCarran-Ferguson Act, the language and
8

purpose of the LRRA clearly indicate an intent to preempt state laws regulating [risk retention
groups].”); Ophthalmic Mut. Ins. Co v. Musser, 143 F.3d 1062, 1067 (7th Cir. 1998) (“Congress
specifically preempted some state insurance regulation—namely those state laws regulating [risk
retention groups]—with the enactment of the PLRRA and the LRRA.”); Preferred Physicians
Mut. Risk Retention Grp. v. Pataki, 85 F.3d 913, 914 (2d Cir. 1996) (“[T]he LRRA partially
preempts state regulation of [risk retention groups] and prohibits states from excluding [risk
retention groups] chartered under the laws of another state.”); Cf. State of Fla., Dep’t of Ins. v.
Nat’l Amusement Purchasing Grp., Inc., 905 F.2d 361, 363-64 (11th Cir. 1990) (In contrast to
purchasing groups, “Congress carefully crafted a scheme [for risk retention groups], which, on the
one hand, provides for broad preemption of a non-domiciliary state’s licensing and regulatory laws
but which, on the other hand, explicitly preserves for those states several very important powers.”).
Accordingly, I FIND the LRRA expressly preempts most state insurance laws.
ii. The Scope of the LRRA is Expansive
Having found Congress expressly declared its intent to preempt most state laws regulating
non-resident risk retention groups, I now turn to the scope of that preemption. The
above-described legislative history indicates that the LRRA broadly preempts state laws
regulating non-resident risk retention groups. H.R. Rep. No. 99-865, at 15 (1986), reprinted in
1986 U.S.C.C.A.N. 5303, 5312 (hereinafter “H.R. Rep. No. 99-865”) (“The format of Section 3 of
the Act [listing limited exceptions to its preemption provisions] is to confirm the broad authority of
the chartering State regarding the formation and operation of risk retention groups . . . .”).
Also, courts reviewing the LRRA’s statutory framework have concluded that the LRRA’s
preemptive provisions are expansive. See Alliance of Nonprofits for Ins., Risk Retention Grp. v.

9

Kipper, 712 F.3d 1316, 1318-19 (9th Cir. 2013) (“The [LRRA] broadly preempts ‘any State law,
rule, regulation, or order to the extent that such law, rule, regulation, or order would . . . make
unlawful, or regulate, directly or indirectly, the operation of a risk retention group.’” (quoting 15
U.S.C. § 3902(a)(1)); Preferred Physicians Mut. Risk Retention Grp. v. Pataki, 85 F.3d 913, 915
(2d Cir. 1996) (“We agree with the district court that the LRRA’s preemption language is
expansive. . . . This expansiveness is emphasized by the structure of the Act, which sets forth a
broad preemption followed by certain limited exceptions.” (internal citations omitted));; Nat’l
Home Ins. Co. v. State Corp. Comm’n of Com. of Va., 838 F. Supp. 1104, 1109 (E.D. Va. 1993)
(“[T]he Act’s structure and language make clear that ‘[t]he express preemption of state law with
respect to risk retention groups is expansive.’” (quoting City Cab Co. v. Edwards, 745 F. Supp.
757, 761 (D. Me. 1990)); Cf. Nat’l Amusement Purchasing Grp., Inc., 905 F.2d 361, 364 (11th Cir.
1990) (“Unlike the risk retention section which broadly preempts state law while enumerating
specific laws that states may enforce, the section pertaining to purchasing groups expressly
preempts a limited number of specific state laws . . . .”).
In addition, the presumption against preemption does not apply here. For such a
presumption to arise, “the federal law must not be specifically related to the business of
insurance[.]” Am. Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 230-31 (4th Cir.
2004). Because the LRRA specifically declares its intent to preempt certain state insurance
regulation, the LRRA meets the specificity requirements of the McCarran-Ferguson Act. See, e.g.,
Nat’l Warranty Ins. Co. v. Greenfield, 214 F.3d 1073, 1077 (9th Cir. 2000); Ophthalmic Mut. Ins.
Co v. Musser, 143 F.3d 1062, 1067 (7th Cir. 1998). Accordingly, I FIND the LRRA’s preemption
provisions are expansive.

10

iii. The LRRA Preempts West Virginia Code § 33-20D-3
West Virginia Code § 33-20D-3 provides that a medical malpractice insurer must, “[u]pon
cancellation, nonrenewal or termination of any claims made professional malpractice insurance
policy . . . offer to the insured tail insurance coverage.” Id. § 33-20D-3(a). In addition, the insurer
must offer its insured “the opportunity to amortize the payment of premiums for tail insurance over
a period of not more than thirty-six months, in quarterly payments.” Id. § 33-20D-3(b).
By its terms, § 33-20D-3 is meant to regulate insurers. This statute, if applied to Oceanus,
would force it to provide tail insurance and certain financing options, and thus directly regulates its
operation. Therefore, § 33-20D-3 fits within the scope of LRRA preemption. Because § 33-20D-3
does not fall under one of LRRA’s exceptions to preemption, federal law preempts it. See 15
U.S.C. §§ 3902(a)(1)(A)-(I) (risk retention group exceptions) and 3905 (financial responsibility
exception); see also Nat’l Warranty Ins. Co., 214 F.3d at 1079-80 (summarizing exceptions). As a
result, the regulatory laws of South Carolina, where Oceanus is chartered, in combination with
federal law, apply to Oceanus. Accordingly, I FIND § 33-20D-3 is inapplicable to Oceanus.
D. Analysis of Dr. Soyoola’s Amendments
Having addressed the initial preemption issues, I will now examine the merits of Dr.
Soyoola’s amendments. As previously discussed, Dr. Soyoola is seeking to add three additional
counts: fraud, false and deceptive practices, and punitive damages. He also seeks to revise his
breach of contract count to add a claim arising under the Policy. As result of the analysis that
follows, only Dr. Soyoola’s claims for fraud, false and deceptive practices, breach of contract, and
punitive damages arising under the Policy remain.
11

i. Breach of Contract Arising Under the Policy
While the LRRA preempts state insurance laws that regulate risk retention groups, it does
not preempt generally applicable areas of law, such as the law of contracts. See generally H.R.
Rep. 99-865, at 14-15 (“As an insurance company operating under this Act, a risk retention group
could engage in a range of activities, but the Committee wished to be clear that the scope of the
exemption is defined by the laws governing the [insurance] business. It would not extend, for
example, to the laws of nonchartering states which establish regulatory regimes for businesses and
industries other than insurance.”). Basic contract law applies to all individuals or businesses that
contract in West Virginia.
To recover under a breach of contract theory, the plaintiff must prove: “the existence of a
valid, enforceable contract, that the plaintiff has performed under the contract, that the defendant
has breached or violated its duties or obligations under the contract, and that the plaintiff has been
injured as a result.” Executive Risk Indem., Inc. v. Charleston Area Med. Ctr., Inc., 681 F. Supp. 2d
694, 714 (S.D. W. Va. 2009). Here, Dr. Soyoola asserts that the Policy, a contract of insurance,
existed between him and Oceanus. He also alleges that Oceanus breached its duties under the
contract by failing to provide him coverage under the Policy for the McNeely action. Finally, he
claims that because of the breach he has suffered “direct, monetary damages.” (Am. Compl.
[Docket 33-2], ¶ 20). Therefore, I FIND that Dr. Soyoola’s claim for breach of contract arising
from the Policy would survive a motion to dismiss. Accordingly, I GRANT Dr. Soyoola’s
amendment with respect to the breach of contract claim arising out of the Policy.

12

ii. False and Deceptive Practices
Under the LRRA, a non-chartering state may require a risk retention group to comply with
its laws “regarding deceptive, false, or fraudulent acts or practices . . . .” 15 U.S.C. §
3902(a)(1)(G). Similar to Dr. Soyoola’s claim for unfair trade practices in his original complaint,
Dr. Soyoola’s claim for false or deceptive practices arises under West Virginia’s Unfair Trade
Practices Act (“UTPA”), West Virginia Code § 33-11-1. 4 Because Dr. Soyoola’s deceptive
practices claim falls under an exception to the LRRA, this claim is not preempted. See Nat’l
Warranty Ins. Co. v. Greenfield, 214 F.3d 1073, 1079 (9th Cir. 2000).
The UTPA regulates insurance trade practices by defining and prohibiting unfair or
deceptive practices. W. Va. Code § 33–11–1. The UTPA states that “[n]o person shall engage in
this State in any trade practice which is defined in this article as . . . an unfair or deceptive act or
practice in the business of insurance.” Id. § 33–11–3. The Supreme Court of Appeals of West
Virginia has held that the UTPA creates a private cause of action against insurance companies who
violate the Act. Elmore v. State Farm Mut. Auto. Ins. Co., 504 S.E.2d 893, 901 (W. Va. 1998)
(“This Court has held that there is an implied private cause of action for a violation by an insurance
company of the unfair settlement practice provisions of W. Va. Code § 33-11-4(9).”).
4

Dr. Soyoola’s claim for unfair trade practices and false and deceptive practices are essentially the same claim of
relief. For his unfair trade practices claim, Dr. Soyoola cites West Virginia Code § 33-11-1, which states “[t]he
purpose of this article is to regulate trade practices in the business of insurance . . . by defining . . . all such practices in
this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the
trade practices so defined or determined.”
To state a claim for relief, a plaintiff must show the defendant engaged in unfair, false, and deceptive practices as
defined by West Virginia Code § 33-11-4(9). The allegations in the count for unfair trade practices closely track the
deceptive practices listed in § 33-11-4(9). In his count for false and deceptive practices, Dr. Soyoola alleges that
Oceanus repeatedly violated § 33-11-4(9). Because relief under both counts is predicated on a violation of §
33-11-4(9), they are the same claim. However, “a party may set out 2 or more statements of a claim or defense.” Fed.
R. Civ. P. 8(d)(2).

13

To state a claim under UTPA, the plaintiff must show that the insurer repeatedly violated §
33-11-4(9). Syl. Pt. 4, Dodrill v. Nationwide Mut. Ins. Co., 491 S.E.2d 1 (W. Va. 1996). Violations
may occur in the handling of multiple claims or a single claim. See id. Here, Dr. Soyoola alleges
Oceanus repeatedly violated § 33-11-4 of the Act, which defines prohibited unfair and deceptive
practices. Specifically, the proposed complaint asserts Oceanus acted in bad faith by (1) failing to
acknowledge coverage for the medical malpractice claim under the Policy, (2) failing to confirm
$1 million in tail coverage, and (3) forcing Dr. Soyoola to file the instant action to obtain benefits
under the Policy and the tail coverage he should have received. The proposed complaint further
alleges that these violations were wrongful and repeated. Although Dr. Soyoola cites § 31-11-4, he
does not cite the specific subsections Oceanus repeatedly violated.
Concerning the claim arising under the Policy, Dr. Soyoola’s allegations likely fall under
the following subsections:
(d) refusing to pay claims without conducting a reasonable investigation
based upon all available information;
...
(f) Not attempting in good faith to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably clear; [and]
...
(n) failing to promptly provide a reasonable explanation of the basis in the
insurance policy in relation to the facts or applicable law for denial of a
claim or for the offer of a compromise settlement.”
W. Va. Code § 33-11-4(d), (f), and (n). If Dr. Soyoola timely made a demand for coverage under
the Policy, Oceanus’s repeated and alleged failure to compensate Dr. Soyoola, without proper
cause, would constitute a violation of the above-cited subsections. Accordingly, I GRANT the

14

plaintiff’s addition of the count of false and deceptive practices with respect to bad faith claims
arising under the Policy.
However, I FIND the count for false and deceptive practices with respect to tail coverage
would not survive a motion to dismiss. Dr. Soyoola alleges that Oceanus acted in bad faith by
failing to confirm $1 million in tail coverage. Dr. Soyoola alleges that Oceanus was required to
provide such coverage under West Virginia Code § 33-20D-3(a). As previously mentioned, §
33-20D-3(a) is preempted by the LRRA. Because Oceanus did not have to comply with §
33-20D-3(a), it cannot be said that it acted in bad faith by failing to confirm the $1 million in tail
coverage. Accordingly, I DENY the plaintiff’s motion to add the false and deceptive practices
count with respect to tail coverage.
iii. Fraud
Fraud, like contract law, is a generally applicable area of tort law and thus not preempted
by the LRRA. Dr. Soyoola characterizes his fraud claim in three ways: (1) that Oceanus told him
that he had “no coverage under the Policy for the McNeely claim and actions,” even though
Oceanus knew the tail coverage would insufficient to cover the claims, (2) that Oceanus failed to
inform him of the adverse consequences of taking less than $1 million in tail coverage, and (3) that
Oceanus misrepresented his tail coverage options by failing to offer him the right to amortize his
premiums as required by West Virginia Code § 33-20D-3(a). (See Am. Compl. [Docket 33-2], ¶
38).
Oceanus argues Dr. Soyoola’s fraud claims are futile under the “gist of the action”
doctrine. Under the gist of the action doctrine, “[a]n action in tort will not arise for breach of
contract unless the action in tort would arise independent of the existence of the contract.” Syl. Pt.

15

9, Lockhart v. Airco Heating & Cooling, Inc., 567 S.E.2d 619 (W. Va. 2002). In other words,
“whether a tort claim can coexist with a contract claim is determined by examining whether the
parties’ obligations are defined by the terms of the contract.” Gaddy Eng’g Co. v. Bowles Rice
McDavid Graff & Love, LLP, 746 S.E.2d 568, 577 (W. Va. 2013) (per curiam) (citing Goldstein v.
Elk Lighting, Inc., No. 3:12–CV–168, 2013 WL 790765, at *3 (M.D. Pa. 2013)). This doctrine will
bar an action in tort, such as fraud, if a party establishes any of the following:
(1) where liability arises solely from the contractual relationship between the
parties; (2) when the alleged duties breached were grounded in the contract itself;
(3) where any liability stems from the contract; and (4) when the tort claim
essentially duplicates the breach of contract claim or where the success of the tort
claim is dependent on the success of the breach of contract claim.

Id. (quoting Star v. Rosenthal, 884 F. Supp. 2d 319, 328–29 (E.D. Pa. 2012)). In his response, Dr.
Soyoola focuses on the preemption issues and does not address Oceanus’s gist of the action
argument.
The gist of the action doctrine does not bar Dr. Soyoola’s first allegation against Oceanus.
An exception to the gist of the action doctrine is fraud based “on expression[s] of intention” if a
party lacks such intent “to fulfill the promise at the time it was made . . . .” Croston v. Emax Oil
Co., 464 S.E.2d 728, 732 (W. Va. 1995). In his factual background section, Dr. Soyoola states that
“Oceanus wrongfully did not intend to provide Dr. Soyoola with any defense or indemnity under
the Policy for any of the potential claims reported by Dr. Soyoola before the effective date of the
cancellation, non-renewal, or termination of the Policy, including the McNeely claim . . . .” (Am.
Compl. [Docket 33-2], ¶ 11). Construing the facts in a light favorable to Dr. Soyoola, he states a
viable claim for fraud. Accordingly, I GRANT amendment with respect to the fraud claim arising
out of the Policy.
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In addition, the gist of the action doctrine does not bar Dr. Soyoola’s other allegations.
Whether Oceanus had a duty to provide the option of amortization does not arise under any
contractual obligations, but rather under the statutory obligation imposed by West Virginia Code §
33-20B-3. In addition, whether Oceanus had a duty to inform Dr. Soyoola of the tort law
consequences of selecting less than $1 million is not dependent on the contractual relationship
between the parties. However, this duty may arise if Dr. Soyoola demonstrates there was a special
relationship between him and Oceanus. Accordingly, I will also consider the merits of Dr.
Soyoola’s latter two allegations.
The proposed complaint alleges that Oceanus fraudulently misrepresented the tail coverage
options available to Dr. Soyoola. If Dr. Soyoola had been aware of his rights under § 33-20B-3, Dr.
Soyoola claims he would have accepted the $1 million limit with amortization. To recover for
fraudulent misrepresentation, Dr. Soyoola must show: “(1) [t]hat the act claimed to be fraudulent
was the act of the defendant or induced by him; (2) that it was material and false; that plaintiff
relied upon it and was justified under the circumstances in relying upon it; and (3) that he was
damaged because he relied upon it.” Horton v. Tyree, 139 S.E. 737, 738 (W. Va. 1937) (emphasis
added). “The plaintiff does not need to prove that the defendant actually knew the representations
were false if the defendant was in a position to know, and had a duty to know, whether the
representations were true or false.” Wolford v. Children’s Home Soc’y, 17 F. Supp. 2d 577, 584
(S.D. W. Va. 1998).
As previously mentioned, Oceanus was not obligated to provide tail coverage under §
33-20B-3. Therefore, Oceanus’s representation of available tail coverage, which did not include
amortization, was not false. If the statement was not false, Oceanus did not make a representation

17

known to be false or without knowledge of its falsity. I FIND that Dr. Soyoola cannot meet all of
the elements of fraud with regard to the misrepresentations of available tail coverage and
amortization. Accordingly, I DENY the amendment with respect to misrepresentations arising
under § 33-20B-3.
In addition, the proposed complaint alleges Oceanus misrepresented to Dr. Soyoola that
failure to elect $1 million in tail coverage would disqualify him from West Virginia’s
non-economic damages cap. 5 Because of this misrepresentation, Dr. Soyoola elected the $250,000
tail coverage limit, thus exposing himself to unlimited non-economic damages in the McNeely
action.
Fraud may arise from an omission as well as an intentional misrepresentation. Id. “Fraud is
the concealment of truth just as much as it is the utterance of a falsehood.” Frazer v. Brewer, 310
43 S.E. 110, 111 (W. Va. 1902). “Fraudulent concealment involves concealment of facts by one
with knowledge, or the means of knowledge, and a duty to disclose, coupled with an intention to
mislead or defraud.” Livingston v. K-Mart Corp., 32 F. Supp. 2d 369, 374 (S.D. W. Va. 1998)
(Haden, J.).
Dr. Soyoola does not cite, nor can I find, any West Virginia authority obligating Oceanus
to explain to Dr. Soyoola the tort law consequences of electing certain coverage levels. However,
noting the absence of West Virginia law on an insurer’s duty to advise, this court observed that
“[m]any courts have recognized the general rule that ‘absent special circumstances, an insurer or

5

In 2003, the West Virginia legislature lowered the cap on non-economic damages from $1,000,000 to $500,000 or
$250,000, depending on the nature of the action. H.B. 2122, Regular Session (2003). The statute also states that
The limitations on noneconomic damages . . . are not available to any defendant in an action pursuant to
this article which does not have medical professional liability insurance in the amount of at least one
million dollars per occurrence covering the medical injury which is the subject of the action.
W. Va. Code § 55-7B-8(d).

18

its agent has no duty to advise an insured as to the insured’s insurance coverage needs.’” Hill,
Peterson, Carper, Bee & Deitzler, P.L.L.C. v. XL Specialty Ins. Co., 261 F. Supp. 2d 546, 548
(S.D.W. Va. 2003) (quoting Gary Knapp, Annotation, Liability of insurer or agent of insurer for
failure to advise insured as to coverage needs, 88 A.L.R.4th 249, § 3, 1991 WL 741640 (1991)).
The Indiana Court of Appeals has described the factors that could give rise to an insurer’s duty to
advise:
At a minimum, the insurer and insured must be engaged in a long-term relationship
for the purpose of securing insurance coverage. . . . [H]owever, Cook clearly
instructs it is the nature of the relationship, and not merely the numbers of years
associated therewith, that triggers the duty to advise. Some factors relevant to
developing entrustment between the insurer and the insured include: exercising
broad discretion to service the insured’s needs; counseling the insured concerning
specialized insurance coverage; holding oneself out as a highly-skilled insurance
expert, coupled with the insured’s reliance upon the expertise; and receiving
compensation, above the customary premium paid, for expert advice provided.

Parker by Parker v. State Farm Mut. Auto. Ins. Co., 630 N.E.2d 567, 569-70 (Ind. Ct. App. 1994).
In the proposed complaint, Dr. Soyoola alleges that Oceanus was his insurer for five years,
that Oceanus knew about the adverse consequences of selecting less than $1 million in tail
coverage, and that he relied on the information provided by Oceanus in selecting the limit for the
tail coverage. Dr. Soyoola does not allege that Oceanus had exercised “broad discretion” in
helping Dr. Soyoola select a policy, had held itself out as an expert in insurance, or received extra
compensation in providing advice to Dr. Soyoola regarding available coverage options. On
balance, Dr. Soyoola has failed to allege facts suggesting Oceanus had a duty to advise under these
circumstances.
In addition, this duty to disclose does not arise out of some fiduciary relationship between
Oceanus and its insureds, as Dr. Soyoola is essentially arguing. Under West Virginia law, a
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fiduciary duty is “‘[a] duty to act for someone else’s benefit, while subordinating personal interests
to that of the other person. It is the highest standard of duty implied by law [.]’” Elmore v. State
Farm Mut. Auto. Ins. Co., 504 S.E.2d 893, 900 (W. Va. 1998) (quoting Black’s Law Dictionary
625 (6th ed. 1990)). The Supreme Court of Appeals of West Virginia “has never recognized that
the relationship between an insurer and its insured is in the nature of a fiduciary relationship.” Id.
The Supreme Court of Appeals has yet to find the insurer/insured relationship obligates the insurer
to subordinate its interests to that of its insureds during policy negotiations. Nor has the court
found that an insurer must not only explain the policy’s provisions and exclusions, but also explain
the interplay between tort law and the insured’s election of coverage. Accordingly, I DENY Dr.
Soyoola’s amendment with respect to Oceanus’s legal omission.
iv. Punitive Damages
Dr. Soyoola also adds a count for punitive damages. As discussed above, Dr. Soyoola’s
surviving claims are breach of contract, fraud, and fraudulent and deceptive practices arising under
the Policy. With respect to the breach of contract claim, “punitive damages are not available for
ordinary breach of contract actions.” Casto v. Nw. Mut. Life Ins. Co., No. 2:09-CV-00377, 2009
WL 2915132, at *3 (S.D. W. Va. Sept. 2, 2009).
However, Dr. Soyoola can obtain punitive damages under two theories. First, Dr. Soyoola
can recover punitive damages under tort theory. See Syl. Pt. 1, Smith v. Perry, 359 S.E.2d 624, 625
(W. Va. 1987). Punitive damages are available in tort actions where there is “gross fraud, malice,
oppression, or wanton, willful, or reckless conduct or criminal indifference to civil obligations
affecting the rights of others appear[.]” Id. Here, Dr. Soyoola alleges that Oceanus’s fraudulent
intentions regarding the Policy were “reckless, willful, wanton, and/or intentional” and caused him

20

to “suffer direct, monetary damages and the potential for financial devastation.” (Am. Compl.
[Docket 33-2], ¶¶ 46-47). Construing the allegations in his favor, Dr. Soyoola would be entitled to
an award of punitive damages for Oceanus’s fraudulent conduct.
Second, punitive damages are also available under the UTPA. See Pen Coal Corp. v.
William H. McGee & Co., 903 F. Supp. 980, 989 (S.D. W. Va. 1995); Syl. Pt. 3, Poling v.
Motorists Mutual Ins. Co., 450 S.E.2d 635 (W. Va. 1994) An insurer may be liable for refusal to
pay a claim if it “actually knew that the policyholder’s claim was proper, but willfully, maliciously
and intentionally utilized an unfair business practice in settling, or failing to settle, the insured’s
claim.” McCormick v. Allstate Ins. Co., 475 S.E.2d 454, 458 (W. Va. 1998).
In his proposed complaint, Dr. Soyoola alleges that he informed Oceanus of the McNeely
occurrence before Oceanus cancelled the Policy. Dr. Soyoola claims Oceanus repeatedly violated
West Virginia Code § 33-11-4(9), including failing to promptly settle claims when coverage was
reasonably clear. Dr. Soyoola alleges that although Oceanus “knew or should have known that Dr.
Soyoola’s claim for demand for coverage was proper,” Oceanus failed to “confirm coverage for
the McNeely Plaintiff’s demand to settle the claim.” (Am. Compl. [Docket 33-2], ¶ 35). Dr.
Soyoola further alleges that such conduct was “willful, wanton, malicious, and intentional . . . .” Id.
Therefore, I FIND Dr. Soyoola has alleged sufficient facts for his punitive damages count to
survive a motion to dismiss. Accordingly, I GRANT Dr. Soyoola’s amendment for punitive
damages with respect to the fraud and fraudulent and deceptive practices claims arising under the
Policy.

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IV.

Conclusion
For the reasons stated above, Dr. Soyoola’s motion to amend [Docket 33] is GRANTED

in part with respect to the breach of contract, fraud, false and deceptive practices, and punitive
damages claims arising under the Policy, but DENIED in part with respect to the fraud, false and
deceptive practices, and punitive damages claims arising under the Tail Policy. The court
DIRECTS the plaintiff to file his amended complaint within 14 days of the date of this Order.
The court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party. The court further DIRECTS the Clerk to post a copy of this published opinion
on the court’s website, www.wvsd.uscourts.gov.

ENTER:

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December 11, 2013