The question stated in the title was answered again recently by a newly appointed Dallas Federal District Court Judge for the Northern District of Texas, the Honorable Ada Brown. In Singer v. State Farm Lloyds, No. 3:19-cv-1672 (Tex. N.D. Sept. 3, 2020), the trial court analyzed each claim and explained the reasoning for ruling either that the claim was subject to Rule 9(b)’s heightened pleading requirements or only subject to Rule 8’s general pleading requirements. Although this issue and the result are not novel, this case provides an excellent reminder to lawyers practicing insurance law of how to correctly plead a first-party insurance dispute suit and thereby avoid an insurer’s Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted.
The place to begin of course is with the Federal Rules of Civil Procedure. Rule 8 entitled: General Rules of Pleading states, in relative part:
(a) Claim for Relief. A pleading that states a claim for relief must contain:
(1) a short and plain statement of the grounds for the court’s jurisdiction, unless the court already has jurisdiction and the claim needs no new jurisdictional support;
(2) a short and plain statement of the claim showing that the pleader is entitled to relief, and
(3) a demand for the relief sought, which may include relief in the alternative or different types of relief.
Rule 9 entitled Pleading Special Matters requires, in pertinent part:
(b) Fraud or Mistake: Conditions of Mind. In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.
This rule, at a minimum, requires a plaintiff to plead facts of who, what, where, when, and how the alleged fraud occurred.
The facts of this case are typical of these types of suits. A March 28, 2017, Dallas hailstorm severely damaged Plaintiff’s house. State Farm paid Plaintiff an actual cash value (“ACV”) amount of $63,640.67 which was not adequate for Plaintiff to make all the necessary repairs. In early June 2017 another storm hit, and the home suffered additional damage especially water damage to the interior. State Farm’s inspector of the second storm’s damage acknowledged that Plaintiff was underpaid originally. A new claim was filed for the second storm damage. State Farm advised Plaintiff that the replacement cost value (“RCV”) for the second storm damage was $6,182.61. The opinion states that “State Farm misrepresented the amount of damages and the policy coverage for costs associated with water mitigation.” (Singer at 2.) Plaintiff fared no better in a second inspection of the second storm which resulted in an additional payment of only $388.09. Plaintiff hired an attorney and made a demand in the amount of the estimate of Plaintiff’s public adjuster, which was $179,053.75. State Farm conducted a third inspection and found $12,757.83 of additional damages which had originally been declared as non-covered. State Farm made two additional payments of $2,161.64 and $529.78 but refused to consider the estimate amount of the public adjuster.
Plaintiff filed suit and asserted claims for breach of contract, violations of the Texas Insurance Code Chapters 541 and 542, violations of the Deceptive Trade Practices Act (“DTPA”), breach of the duty of good faith and fair dealing, attorney fees and additional damages of conduct committed knowingly and intentionally.
State Farm filed a Rule 12(b)(6) motion to dismiss all Plaintiff’s claims other than the breach of contract and argued that the complaint failed to meet the heightened pleading standard required by Rule 9(b) for these claims. Plaintiff countered that his complaint was sufficient.
Starting with Plaintiff’s Texas Insurance Code violations, the court disputed State Farm’s blanket assertion that Plaintiff had failed to plead all of his insurance code violations strictly as required under Rule 9(b). (Id. at 5.) The court wrote that not all of Plaintiff’s insurance code violations involved allegations of fraud. In fact, the court listed all subsections of Section 541.060 as not involving fraud as follows:
541.060(a)(1) misrepresenting to a claimant a material fact or policy provision relating to coverage at issue;
541.060(a)(2)(A) failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of:
(A) a claim, with respect to which the insurer’s liability has become reasonable clear; or
(B) a claim under one portion of a policy with respect to which the insurer’s liability has become reasonably clear to influence the claimant to settle another claim under another portion of the coverage unless payment under one portion of the coverage constitutes evidence of liability under another portion;
541.060(a)(3) failing 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;
541.060(a)(4) failing within a reasonable time to:
(A) affirm or deny coverage of a claim to a policyholder; or
(B) submit a reservation of rights to a policyholder;
541.060(a)(7) refusing to pay a claim without conducting a reasonable investigation with respect to the claim.
In addition, the court found that none of the 542.055-058 insurance code sections constituting delay in payment involved fraud, and held that as to these claims, the Rule 8 pleading standard applied.
However, the court did find that Plaintiff’s Section 541.061 insurance code claim for material misrepresentations of an insurance policy did involve allegations of fraud or mistake and that these claims required compliance with the more stringent Rule 9(b) pleading standard which Plaintiff had not met. The court found that Plaintiff failed to state the particulars of who, what, when, where, and how of the alleged misleading statements.
The trial court also found that pursuant to Rule 9(b) Plaintiff had not pleaded with particularity the DTPA claims which involved fraud and mistake. With regard to Plaintiff’s breach of the duty of good faith and fair dealing, the court ruled that Plaintiff’s factual allegations for this claim were not of fraud. State Farm’s Motion to Dismiss this claim was denied. The court also denied State Farm’s motion to dismiss regarding Plaintiff’s pleading of additional damages for State Farm’s knowingly and intentional conduct.
The court granted State Farm’s motion to dismiss in part and denied it in part and ordered Plaintiff to replead and file an amended complaint within 30 days.
Although this opinion does not present new law, I chose to present a review of this case as a “refresher” of important federal pleading rules. The opinion is well written and from a new federal judge in Texas. Most federal courts will allow an amendment at least one time to correct pleading deficiencies. However, in federal court, getting it right the first time to make an initial good impression is always the best practice.
