As a former federal law clerk, the purpose of this blog series is to help educate policyholders about what they may face with insurance litigation in federal court. Today, I explain just a few ways an insurer might treat an insured’s complaint in federal court.
A complaint is a formal document that alleges how the insurance company violated the policy or law. The complaint is written in separate paragraphs, identifies what the insurer did wrong, and explains what relief the insured is asking for.
Federal rules require the insurer to respond to the complaint. Insurers have several options.
First, they can answer the complaint. In the answer, insurers must either admit whether the insured’s allegations are true or deny them. Insurers almost always deny that they acted wrongfully. After admitting or denying the allegations, insurers can file affirmative defenses. Affirmative defenses are reasons that the insurance company claims they are not liable for the amount the insured is requesting. Once an insurance company answers the complaint, the pleadings close and the case proceeds to discovery under the case management plan.
Second, insurers can file a motion to dismiss. The most common motion to dismiss alleges that the complaint failed to state a claim upon which relief can be granted. This motion argues that even when taking the complaint’s allegations as true, the insured did not adequately plead that the insurer violated the policy or the law. In response, the insured has options. If it is the first motion to dismiss, the insured can just amend the complaint as a matter of course to rectify the perceived errors identified by the insurer. This renders the insurer’s motion to dismiss moot. Amending the complaint is a great option for insureds because it can help strengthen the complaint against future arguments the insurer might make later in the proceedings. Amending also saves the court time and can prevent a lot of needless motion practice that can delay the case’s progression.
The insured can also respond in opposition to the motion to dismiss. In the response, the insured essentially explains to the judge why the insurance company’s arguments are wrong. The insured will identify the law that the court should apply and point out the complaint’s allegations that support how the insured alleges the insurer violated the law.
Except in very narrow circumstances, the court does not consider evidence when ruling on a motion to dismiss. Instead, the court looks to the allegations contained in the complaint, accepts those allegations as true, and makes a judgment about whether the insured has a plausible claim. No proof is required, and the court does not consider testimony and documents that are not attached to the complaint.
If a motion to dismiss is granted, federal courts generally offer the insured an opportunity to file an amended complaint that rectifies the deficiencies that the court noted. Sometimes, the amendment requires something as little as adding in a date or additional allegations. Once the amendment is completed, the process starts all over again.
Third, insurers are increasingly exercising contractual provisions to compel appraisal or arbitration. If the insurance contract contains appraisal or arbitration provisions, the insurer can invoke those provisions and essentially ask the court to put a halt to all the proceedings and refer the case out to a panel for a decision on the damages the insured is owed. The court might issue a stay and require the attorneys to file status updates on how the case is progressing. While the courts have consistently held these provisions are enforceable, the insured might be able to argue that they should not be enforced based on the insurer’s conduct or some other law.