COURT APPLIES HEIGHTENED PLEADING STANDARDS - DISMISSES EXTRA-CONTRACTUAL CLAIMS AGAINST INSURER

Last Wednesday, the U.S. District Court for the Eastern District of Texas applied the heightened pleading standards under Federal Rules of Civil Procedure 9(b) and 12(b)(6) in dismissing claims alleging a breach of the duty of good faith and fair dealing and, violations of the Texas Insurance Code and DTPA arising from a disputed property damage claim under a homeowners policy. In Guey Ming Yeh & Ling Ping Lin v. Safeco Insurance Company of Indiana, No. 4:18-CV-00026, 2018 WL 1858151 (E.D. Tex. April 18, 2018), the insured property in Plano, Texas suffered damage from an April 3, 2014, storm. Safeco inspected the property and issued payments based on an initial estimate and a revised estimated finding $25,277.94 in covered damage. The insureds later retained a public adjuster, Cal Spoon, who inspected the property on April 16, 2016, over two years after the loss, and prepared an estimate totaling $45,989.15 plus overhead and profit. Spoon’s estimate included disputed damage not addressed in Safeco’s estimate.

On August 28, 2017, the insureds filed a state court lawsuit in Collin County, Texas and Safeco removed the matter to federal court. The lawsuit alleged that Safeco failed to adequately compensate the insureds for the storm damage to the insured property and asserted causes of action for breach of contract, breach of the duty of good faith and fair dealing, violations of the Texas Insurance Code and Texas Deceptive Trade Practices Act (DTPA). Then on March 12, 2018, Safeco filed its motion to dismiss under Federal Rules of Civil Procedure 9(b) and 12(b)(6). The facts were not disputed.

The court discussed Rule 12(b)(6) (requiring that the complaint assert facts, if accepted as true, state a plausible claim for relief) and Rule 9(b) ( in part requiring that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.”). The court further noted that Rule 9(b) requires particularity in the pleadings, setting forth “the who, what, when, where, and how” the fraud occurred and “[a] plaintiff pleading fraud must ‘specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent.’”  Lastly, the court noted that “[c]laims alleging violations of the Texas Insurance Code and the DTPA and those asserting fraud, fraudulent inducement, fraudulent concealment, and negligent representation are subject to” the heightened pleading requirements of Rule 9(b).

Safeco moved to dismiss the claims alleging a breach of the duty of good faith and fair dealing and, violations of the Texas Insurance Code and DTPA. First addressing the duty of good faith and fair dealing allegations, the court observed that the insureds have not pleaded any facts asserting an act so extreme that it would have caused an injury independent of their claims under the policy and, how they suffered damages other than a denial of policy benefits. There were no facts pleaded to support an untimely investigation and the court found that the complaint merely shows that Safeco paid the insureds and a bona fide dispute remains over the amount. Accordingly, the court granted Safeco’s motion to dismiss the claims alleging a breach of the duty of good faith and fair dealing. And because the Texas Insurance Code and DTPA claims relied upon the same factual allegations, those claims were also dismissed. Only the breach of contract and prompt payment claims will proceed to trial.