Insurance company coverage counsel certainly will do everything in their power to dismiss claims that their clients breached obligations of good faith when those cases are in federal court. Last week’s post, Networking and Sharing Information Can Help Win Cases and Prevent Losses: A Liberty Mutual Example, is followed by another case with a very similar point in Johnson v. Liberty Mut. Ins. Co., No. 10-494, 2010 WL 2560489 (D. N.J. June 24, 2010). The important observation is that it is becoming a lot more difficult to get by motions to dismiss in federal court since civil procedure case law changed, starting in 2007. Bad faith lawsuits are often “sitting ducks” because all the facts and motives giving rise to the bad faith activities are generally not known until after discovery reveals exactly how, what and why the insurance company failed to pay or pay timely.
Here is the Motion to Dismiss Standard noted in Johnson:
In addressing a motion to dismiss a complaint under Rule 12(b) (6), the Court must “accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine, whether under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir.2008). At this stage, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal…129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 554, 556 (2007)). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]’-that the ‘pleader is entitled to relief.’ ” Iqbal, 129 S.Ct. at 1950….
This how the Johnson court analyzed the plaintiff’s pleadings:
The plaintiff asserts that the defendant “negligently failed to act in good faith and otherwise failed to exercise reasonable care in investigating and adjusting” her underinsured motorist claim…She fails, however, to provide sufficient factual support to accompany this assertion. (Id.) The Complaint does not indicate that the defendant has either denied payment without a fairly debatable reason for doing so or unreasonably delayed the processing of a valid claim. Rather, the plaintiff states that her underinsured motorist claim proceeded to arbitration, and acknowledges that it was her choice not to accept the arbitrator’s award. (Id.) Although she contends that there are “facts that would lead to the conclusion that defendants [sic] acted in bad faith,” she fails to set forth those facts in the Complaint, and instead states they must be “gleaned through continuing discovery. (emphasis added)
Given what I have written so far, I bet you can guess what is coming next in the opinion:
Lacking any factual support, the plaintiff’s claim of bad faith stands alone as a “bare averment” that she “wants relief and is entitled to it.”…Such conclusory statements are not entitled to be accepted as true and are not enough to survive a motion to dismiss. See Iqbal, 129 S.Ct. at 1950 (explaining that the “doors of discovery” are not unlocked for a plaintiff “armed with nothing more than conclusions”). Thus, even when viewed in the light most favorable to the plaintiff, the Complaint has “failed to raise a right to relief above the speculative level” as is necessary to survive a motion to dismiss…Accordingly, the plaintiff’s bad faith claim will be dismissed.
Policyholders are usually not given the true details of the bad faith conduct that give rise to a valid bad faith claim. Can you imagine an insurance company that uses an outcome oriented expert to provide a false or unreasonable basis for denying or delaying a claim explaining to the policyholder that such conduct is what caused the claim outcome? Even the most jaded insurance adjusters know when real bad faith conduct occurs, everybody is trying to hide it. So, since the policyholder merely knows that the claim was not paid fully or promptly, how is the exact factual pleading supposed to be made to meet the standard?
Federal court judges will certainly be getting more insurance controversy removals from state to federal court. Motions to dismiss were usually not filed in federal court because they rarely prevailed. I predict they will be commonplace with insurance controversies involving claims practice violations.
