Opinion
CIVIL ACTION NO. 02-1444, SECTION "K" (4)
December 2, 2002
ORDER AND REASONS
Before the Court is Defendants' Rule 12(b)(6) Motion to Dismiss Plaintiffs' Detrimental Reliance Claim ((Doc. 20) filed by St. Paul Guardian Insurance Company and St. Paul Fire and Marine Insurance Company, in its own corporate capacity and as successor in interest to The St. Paul Insurance Company. Having considered the parties' pleadings and memoranda, together with the relevant law, the Court denies defendants' Motion to Dismiss and orders plaintiffs to amend their complaint under Rule 12(e).
BACKGROUND
Plaintiffs are a group of Louisiana physicians who purchased professional liability policies from St. Paul Guardian Insurance Company. Plaintiffs' renewal policy for the year 2002 included an Optional Reporting Endorsement, which gave the option to purchase tail coverage within 30 days after the policy's cancellation or non-renewal. "Ex. A" to Plaintiffs' Original Pet. (Form 40294, Ed. 11-80, p. 2). If exercised, this option would extend coverage (1) to injuries or deaths occurring after the retroactive date but before the date on which the policy ended and (2) to claims first made or reported to St. Paul after the policy ended but before the reporting endorsement ended. Id. Under the terms of the endorsement, St. Paul would provide this tail coverage at no cost to the insured's beneficiary if the insured died. Id. St. Paul also agreed to provide free tail coverage to an insured who retired from practice after age 65 after having been continuously insured with St. Paul in the five years before retirement, or to an insured who became totally disabled. Id.
Named defendants are St. Paul Guardian Insurance Co., St. Paul Insurance Co., St. Paul Fire and Marine Insurance Co., and any related entities. The Court will simply refer to Defendants as "St. Paul."
The initial endorsement in the 2002 policy was itself deleted by another Optional Reporting Endorsement. "Ex. A" to Plaintiffs.' Original Pet. (Form 46149, Rev. 8-00). The new provision offered free tail coverage to retiring physicians of any age who had been continuously insured with St. Paul in the five years before retirement. Form 46149, Rev. 8-00, p. 2. The new endorsement read in part:
Optional Reporting Endorsement
This agreement may end because one of us chooses to cancel it or the agreement is not renewed. If that happens, you have the right to buy an optional time extension to first report claims or suits that would have been covered by this agreement. . . .
* * *
Death, total disability or retirement. If this agreement hasn't ended, we'll provide a Reporting Endorsement for no additional premium:
• to your beneficiary if you die;
• to you if you retire permanently from all professional practice and have been continuously insured with us for the last five (5) years and have been individually named in the Coverage Summary before you retire;
• to you if you meet the requirements for total disability.Id.
Plaintiffs at some point received the following letter from St. Paul:
Dear Policyholder:
One of the industry's broadest medical professional liability coverages has become even broader! Your renewal policy includes changes to the existing optional reporting endorsement provisions:
• If you permanently retire from all professional practice and have been insured with the St. Paul continuously for five years as a specifically-named individual with separate limits before retirement, you will qualify for a free optional reporting endorsement at retirement. This replaces the existing qualification of 10 continuous years of St. Paul coverage and retiring at age 55, or five continuous years of coverage, retiring at 65.
If you have any questions about this change, please contact the agency shown on your policy.
We value your business with The St. Paul and look forward to continuing to help you meet your insurance needs.
Sincerely,
/S/
Kevin O'Brien Practice Leader The St. Paul — Global Health Care
GPSAL5 9-29-00
"Ex. B" to Plaintiffs.' Original Pet.
The date on which received this notice remains unclear. Plaintiffs attached this notice, along with their 2002 policy and the endorsements discussed above, to their Original Petition. The Court has not been informed whether this notice was sent to plaintiffs only in connection with their 2002 renewal policy, or whether it also accompanied their 2001 renewal policy. Along these same lines, the Court does not know when the revised Optional Reporting Endorsement (Form 46149, Rev. 8-00) first became available to plaintiffs. It may have been only in 2001 (when plaintiffs were due to renew their policy for the year 2002), or presumably it might have been shortly after August 2000 (when they were due to renew their policy for the year 2001).
Sometime later (again, the record does not reveal exactly when), St. Paul announced that it would cease writing medical malpractice policies. St. Paul did not cancel plaintiffs' 2002 policy in connection with this announcement. Rather, it declined to renew it beyond December 31, 2002, the policy's expiration date.
On February, 25, 2002, in response to plaintiffs' inquiry, St. Paul sent a letter explaining how they might still be entitled to free tail coverage:
If one or more of the physicians covered by this policy decides to retire before the expiration date of the policy (12/31/02), they are entitled to a free reporting endorsement, provided they have been continuously insured by The St. Paul for five years. In fact, we recently informed our Louisiana agents about a new option for physicians nearing retirement. Under this option, if any of these physicians informs us in writing prior to the expiration date of their policy (12/31/02) that they will retire prior to June 30, 2003, we will renew the retiring physician's coverage at the current rates up to their date of retirement, at which time we will issue a free reporting endorsement.
"Ex. C" to Plaintiffs.' Original Pet.
Plaintiffs sued St. Paul for breach of contract and later, in a First Amending and Supplementing Complaint (Doc. No. 14), added a detrimental reliance claim. Plaintiffs alleged that St. Paul "unilaterally and arbitrarily" withdrew from the medical malpractice insurance market "in violation of its contractual obligations and certain promises made and implied concerning the continued availability of professional liability insurance through St. Paul." Plaintiffs' Original Pet. ¶ XI. Plaintiffs, and the putative class they represent, contend that St. Paul wrongfully deprived them of the opportunity to obtain free tail coverage. They claim that representations by St. Paul induced them to purchase malpractice insurance from St. Paul, "although there may have been other options or more advantageous policies available." Plaintiffs' 1st Supp. Am. Compl. ¶ XXII.
Recognizing that "under the terms of the contract of insurance, there was no agreement that defendants would unequivocally continue to write medical malpractice insurance in Louisiana," the Court dismissed plaintiffs' breach of contract claim. Minute Entry, p. 5 (Doc. No. 22). St. Paul now moves under Rule 12(b)(6) to dismiss the detrimental reliance claim as well. St. Paul contends that (1) the allegations in plaintiffs' original and supplementing complaints do not form a properly-pled detrimental reliance claim, (2) plaintiffs' reliance on any of St. Paul's alleged representations was unreasonable as a matter of law, and (3) plaintiffs' detrimental reliance claim is an impermissible attempt to alter the terms of St. Paul's policy with parol evidence.
ANALYSIS
A. Standard for a Rule 12(b)(6) Motion to Dismiss.
In reviewing a motion under Fed.R.Civ.P. 12(b)(6), the Court must accept the facts alleged in the plaintiffs complaint as true and construe the allegations in a light most favorable to the plaintiff. Rubinstein v. Collins, 20 F.3d 160, 166 (5th Cir. 1994). The Court considers "the contents of the pleadings, including attachments thereto." Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). In essence, a Rule 12(b)(6) motion "admits the facts alleged in the complaint, but challenges plaintiffs rights to relief based upon those facts." Ward v. Hudnell, 366 F.2d 247, 249 (5th Cir. 1966). Dismissal is appropriate only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). However, "conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss." Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir. 1993).
B. Sufficiency of Plaintiffs' Allegations.
To survive a Rule 12(b)(6) motion, a complaint "need not set forth all the facts upon which the claim is based; rather, a short and plain statement of the claim is sufficient if it gives the defendant fair notice of what the claim is and the grounds upon which it rests." Mann v. Adams Realty Co., 556 F.2d 288, 293 (5th Cir. 1977). Nevertheless, a complaint that "lacks an allegation" regarding a required element necessary to obtain relief' is subject to Rule 12(b)(6) dismissal. Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995).
Plaintiffs' claim for detrimental reliance is governed by La. Civ. Code art. 1967. This Article provides in pertinent part:
A party may be obligated by a promise when he knew or should have known that the promise would induce the other party to rely on it to his detriment and the other party was reasonable in so relying. Recovery may be limited to the expenses incurred or the damages suffered as a result of the promisee's reliance on the promise. Reliance on a gratuitous promise made without required formalities is not reasonable.
Under Louisiana cases interpreting this statute, plaintiffs must ultimately show that (1) St. Paul made a representation by conduct or word, (2) plaintiffs justifiably relied on that representation, and (3) plaintiffs changed their position to their detriment because of that reliance. See, e.g., Babkow v. Morris Bart, P.L.C., 726 So.2d 423, 427 (La.App. 4th Cir. 1998). St. Paul argues that plaintiffs' original and amended complaints fail to allege any promise, reliance, or actual detriment. The Court will now turn to each of these elements.
(1) Promise or Representation
Reading plaintiffs' averments generously (as it must), the Court can fairly make out a "promise." The "promise" is St. Paul's alleged representation that it would continue to write professional medical liability policies for a time sufficient to permit to satisfy the requirements for free tail coverage. Plaintiffs' Original Pet. ¶¶ XI, XIII.
(2) Justifiable Reliance
Likewise, plaintiffs' alleged "reliance" is their decision to remain insured with St. Paul. Id. ¶ IX. However, the issue of whether such reliance was justified is not as clear. St. Paul denies offering any assurance that it would continue to write medical malpractice policies in Louisiana. It further contends that, even if such a representation were made, plaintiffs were unreasonable as a matter of law to rely on any promise not incorporated into the policy. St. Paul points to three policy provisions and the Louisiana Entire Contract Policy Statute.
The non-renewal clause in St. Paul's policy states in part:
Non-renewal. We may decide not to renew or continue this policy. If so we'll mail or deliver a notice of non-renewal to the first named insured and agent at least 60 days before the expiration date of this policy. . . .
"Ex. A" to Plaintiffs' Original Pet. (Form 40753, Rev. 6-00, p. 1).
The revised Optional Reporting Endorsement similarly begins:
This agreement may end because one of us chooses to cancel it or the agreement is not renewed. . . .
The revised Optional Reporting Endorsement also stated in part:
Death, total disability, or retirement. If this agreement hasn't ended, we'll provide a Reporting Endorsement for no additional premium . . .
Form 46149, Rev. 8-00, p. 2.
The initial Optional Reporting Endorsement is slightly different:
Your professional coverage may end because one of us chooses to cancel or not renew it. . . .
Death, Disability or Retirement
We'll provide the reporting endorsement at no cost . . .
Form 40294, Ed. 11-80, p. 2.
The policy also contains an integration clause:
Policy Changes
This policy contains all the agreements between you and us concerning this insurance. The first named insured is authorized to make changes to this policy with our consent. This policy can only be changed by a written form included as part of the policy. This form must be signed by one of our authorized representatives. . . .Id.
Finally, La. R.S. 22:628 states in part:
No agreement in conflict with, modifying, or extending the coverage of any contract of insurance shall be valid unless it is in writing and physically made a part of the policy or other written evidence of insurance, or it is incorporated in the policy or other written evidence of insurance by specific reference to another policy or written evidence of insurance.
St. Paul argues that in light of these provisions, any reliance on an extra-contractual representation is necessarily ill-founded. It cites Omnitech Int'l, Inc. v. Clorox Co., 11 F.3d 1316 (5th Cir. 1994), which affirmed the Rule 50 dismissal of a detrimental reliance claim brought under La. Civ. Code art. 1967. In that case, Omnitech and Clorox signed a non-disclosure agreement and a letter of intent in connection with the possible sale of Omnitech's "Dr. X" line of roach spray. Omnitech agreed to share certain proprietary information with Clorox while keeping Clorox's interest in the insecticide market confidential. Clorox was given the right to conduct laboratory and marketing tests of Dr. X and was granted the right of first refusal to purchase Omnitech's assets.
When Clorox later acquired another line of insecticides from a different manufacturer and decided not to go forward with the Dr. X acquisition, Omnitech alleged that Clorox had broken its promise not to compete with Omnitech in the insecticide business. At trial, the district court entered judgment for Clorox as a matter of law on Omnitech's detrimental reliance claim, and the Fifth Circuit affirmed. As the Court of Appeals observed, the underlying agreements were the product of on-going negotiations and contained an express merger clause. Id. at 1328. The evidence showed that at the time of their agreement, Omnitech was well aware of Clorox's interest in other insecticide manufacturers and that if it had wished to, Omnitech likely could have insisted that a noncompetition clause be included in the final agreement. Id. at 1328-29. Furthermore, the oral representation upon which Omnitech supposedly relied was made by a Clorox executive whom Omnitech knew had no authority to bind Clorox. Id. at 1329. Under such circumstances, the Fifth Circuit found Omnitech's professed reliance on mutual "understandings" or oral "promises" unreasonable as a matter of law.
Omnitech, however, does not state that a merger clause will render reliance on extracontractual promises unreasonable in all cases. Id. at 1328. Here, plaintiffs distinguish Omnitech on the grounds that St. Paul's alleged promise was in writing and was made by "Kevin O'Brien, Practice Leader. The St. Paul — Global Health Care" — an individual whom they presumably believed would have authority to make binding promises on St. Paul's behalf.
Plaintiffs further contend that La. R.S. 22:628 is no obstacle because their claim does not seek a modification or extension of coverage, but instead seeks "enforcement of promises made by St. Paul outside the terms and conditions of the policy." Plaintiffs' Opp'n at 7. The only extracontractual promises mentioned in plaintiffs' complaints are St. Paul's notice of September 29, 2000; "other representations"; and "certain promises made and implied." Plaintiffs.' Original Pet. ¶ IX, XI. "[O]ther representations" and "certain promises made and implied" lack any specificity. The Court therefore turns to the September 29 notice.
For purposes of this motion only, the Court will assume that plaintiffs are correct, i.e., that La. R.S. 22:628 does not apply to renewal disputes in the context of a detrimental reliance claim, and this issue shall be addressed by an appropriate motion filed by St. Paul after plaintiffs have amended their complaint.
If plaintiffs mean to suggest that the September 29 notice was not the only "representation" made by St. Paul, they must make this clear in their amended complaint with specific factual allegations of other promises.
Plaintiffs claim that this correspondence enticed them to renew their coverage with St. Paul and assured them that St. Paul would continue to write medical malpractice insurance in Louisiana. The notice begins: "One of the industry's broadest medical professional liability coverages has become even broader!" The notice then informs the insured that changes are being made to the Optional Reporting Endorsement (namely, that an insured who retires after five years of coverage with St. Paul may now receive a free reporting endorsement regardless of his age). It goes on to summarize the terms of this new endorsement and compares it to the old endorsement. The notice concludes: "We value your business with The St. Paul and look forward to continuing to help you meet your insurance needs." Notably, the notice does not call the reader's intention to St. Paul's contractual right to non-renewal. Neither, however, does it unambiguously promise that St. Paul would continue to offer professional liability policies until such time as qualified for a free reporting endorsement.
Some Louisiana cases suggest that an insurer has a duty to call its insureds' attention to changes in a renewal policy. See Gaylord Container Corp. v. CNA Insurance Cos., 807 So.2d 864 (La.App. 1st Cir. 2001).
The notice states that the new reporting endorsement "replaces the existing qualification of 10 continuous years of St. Paul coverage and retiring at age 55, or five continuous years of coverage, retiring at 65." The initial endorsement in the policy attached to plaintiffs' Original Petition merely requires that the insured retire at age 65 after five years of continuous coverage with St. Paul. It does not have a "10 continuous years/age 55" option. Form 40294, Ed. 11-80, p. 2.
The Court concludes that this notice, even when coupled with the allegations in plaintiffs' complaints, will not support a detrimental reliance claim. First of all, plaintiffs have not put this notice in context. The record does not reveal when plaintiffs received it. The footer in the notice reads "GPSAL5 9-29-00." It is unclear whether "9-29-00" is the date on which this notice was sent to plaintiffs, or whether this is the date on which the document was produced or last revised. Plaintiffs' Original Petition simply refers to this document as "correspondence . . . dated September 29, 2000." It is also unclear whether this notice was included in a policy renewal package, or whether it arrived under separate cover. In addition, plaintiffs' complaints do not reveal when St. Paul informed them that it would not renew their policy. That is, their complaints do not say how much time elapsed between their receipt of the September 29 notice and St. Paul's announcement that it was withdrawing from the market.
Plaintiffs do not argue that this notice was incorporated into their renewal policy.
Plaintiffs face formidable legal obstacles as well. They challenge St. Paul's right not to renew its policies, even though the 2002 policy unmistakably states that St. Paul "may decide not to renew or continue this policy." "Ex. A" to Plaintiffs' Original Pet. (Form 40753, Rev. 6-00, p. 1). As some Louisiana courts have stated, "An insured is presumed to know the provisions of his policy." Stephens v. Audubon Ins. Co., 665 So.2d 683, 686 (La.App. 2d Cir. 1995). See also Robert B. Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv. L. Rev. 961, 981 (1970) ("If the claimant asserts detrimental reliance on an honest but carelessly inaccurate representation, recovery is in general not permitted if the claimant too was careless.").
Plaintiffs respond that "[w]hile a physician might be aware generally that the policy might not be renewed for some reasonable cause, the promotional efforts of St. Paul would dispel any concern that the company would no longer be available at all in Louisiana to market its wonderful new product, considering that St. Paul intended to 'look forward to continuing to help you meet your insurance needs.'" Plaintiffs' Opp. at 7. But under the terms of the policy, both St. Paul and the insured could choose not to renew the policy—with or without cause.
Once again, plaintiffs' complaints lack any specific examples of St. Paul's "promotional efforts" beyond the notice itself.
In Gautreau v. Southern Farm Bureau Casualty Insurance Co., 429 So.2d 866 (La. 1983), a member of the Louisiana Farm Bureau claimed that a Bureau-affiliated insurer had arbitrarily and capriciously declined to renew a property insurance policy after the member made a claim. The member argued that the insurer was bound to renew the policy as long as the insured remained in good standing with the Bureau. The policy contained a non-renewal clause similar to that in St. Paul's 2002 policy. The Louisiana Supreme Court concluded that without a statutory or contractual limitation on the right to non-renewal, the insurer had no obligation to renew the policy.
Plaintiffs have not pointed to, nor has the Court found, any Louisiana statute that limits a medical malpractice insurer's non-renewal rights. Compare Gautreau, 429 So.2d at 868, and Ansalve v. State Farm Mut. Auto. Ins. Co., 737 So.2d 948, 950-51 (La.App. 4th Cir. 1999) (declining to apply Louisiana's good-faith statute, La. R.S. 22:1220, to non-renewal of automobile liability policy), with Ballow v. PHICO Ins. Co., 875 P.2d 1354, 1362-63 (Colo. 1993) (finding breach of good faith under Colorado law in connection with insurer's withdrawal from medical malpractice insurance market).
Arguably, however, Gautreau did not establish an absolute right of non-renewal. In the course of its decision, the court stated:
[N]othing in the pleadings, depositions or affidavits raises a genuine issue as to material fact concerning a separate agreement with the insurer or a representation by the insurer's agent that the plaintiff had the right to purchase insurance from the affiliated insurers as long as he remained a Bureau member in good standing. Two Bureau members stated their understanding that members had this right, but neither stated any factual basis for that understanding or suggested that any action or representation by the Bureau's agents created that understanding.Id. at 869.
This passage seems to imply that an insurer's promise to renew a policy might compel renewal even if the policy itself and the Insurance Code do not. But as indicated previously, the introductory and closing sentences in St. Paul's September 29 notice, standing alone, do not present a "factual basis" which might lead plaintiffs to justifiably believe that St. Paul would continue to renew policies until each physician in their practice group qualified for a free reporting endorsement.
As a final indication of the unreasonableness of "plaintiffs reliance," St. Paul draws an analogy to Louisiana at-will employment cases. These cases generally find at-will employee's reliance on a representation of continued employment or a promise of future benefits to be unreasonable as a matter of law. See, e.g., Wohlschlaeger v. Fairmount Hotel Co., No. 95-922, 1995 WL 468305, at *2-*3 (E.D. La. 1995); Romaguera v. Prudential Ins. Co. of America, No. 95-3006, 1995 WL 747464, at *2 (E.D. La. 1995); Stevenson v. Lavalco, Inc., 669 So.2d 608, 612 (La.App. 2d Cir. 1996).
For instance, in Wall v. Tulane University, 499 So.2d 375 (La.App. 4th Cir. 1987), an at will employee of Tulane University complained when the university revised its tuition waiver program by restricting the number of free courses available to university staff. While his precise theory of recovery is not clear from the court's opinion, the employee claimed that he had relied on the earlier, more generous policy, and had "foregone more lucrative employment so that he could complete his education at Tulane." Id. at 375. The court rejected his argument, noting that the employee handbook which described the previous tuition waiver policy did not "constitute a binding promise by Tulane to continue indefinitely the benefits described therein," Id. at 376, and that as an at-will employee, the plaintiff "was not promised an indefinite continuation of the then existing tuition waiver program, although he clearly assumed that no changes would be made." Id. at 375.
Plaintiffs do not meaningfully distinguish these at-will employment cases. They simply note that "[t]he existence of a promise and the reasonableness vel non of reliance on a promise if there was one, are essentially questions of fact." Carter v. Huber Heard, Inc., 657 So.2d 409, 412 (La.App. 3d Cir. 1995); see also Hughes v. Muckelroy, 700 So.2d 995 (La.App. 1st Cir. 1997) (reversing judgment on the merits where elements of detrimental reliance were not shown to a preponderance of the evidence); Walters v. Edwards, 212 So.2d 749 (La.App. 1st Cir. 1968) (reviewing insureds' testimony and finding no basis for a detrimental reliance claim against insurer for failure to renew automobile liability policy). However, not all detrimental reliance cases present triable issues of fact. See, e.g., Wohlschlaeger, 1995 WL 468305, at *3; Stevenson, 669 So.2d at 612 (dismissing detrimental reliance claims at the pleading stage).
If plaintiffs are to survive a Rule 12(b)(6) motion, their amended complaint must demonstrate why their case is materially different from these, or in other words, why their understanding of St. Paul's renewal obligations was somehow reasonable even though St. Paul's policy plainly states, "We may decide not to renew or continue this policy." The bare allegations currently before the Court are not up to that task.
(3) Detriment
Plaintiffs have not alleged the requisite "detriment." Paragraphs XX and XXI of plaintiffs' supplementing complaint merely track the language of Article 1967. Standing alone, they do not qualify as "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). So far as the Court can tell, the nearest allegation of "detriment" is plaintiffs' statement that "there may have been other options or more advantageous policies available." Plaintiffs' 1st Supp. Am. Compl. ¶ XXII. Speculation that plaintiffs "may have" foregone other options does not equate to the actual harm contemplated by Article 1967. Except for some glancing suggestions in their Memo in Opposition, plaintiffs do not specifically state that there were more attractive policies available when they chose to renew their coverage with St. Paul. They do not allege, for example, that they paid higher premiums in exchange for the right to obtain free tail coverage upon retirement. In short, plaintiffs fail to indicate exactly what they gave up by remaining with St. Paul. If plaintiffs wish to proceed with a detrimental reliance claim, they must present some concrete allegations of actual detriment.
C. Plaintiffs' Use of Parol Evidence.
The Court notes that plaintiffs may be relying on parol evidence to support their claims. However, it is anything bu pellucid whether such evidence would be admissible. Likewise, this issue shall be addressed by an appropriate motion filed by defendants after plaintiffs have amended their complaint.
CONCLUSION
The generic statements in plaintiffs' complaints and two equivocal sentences accompanying a change in a renewal policy will not defeat St. Paul's motion to dismiss. However, the Court is reluctant to conclude that under no set of facts could make out a detrimental reliance claim consistent with their existing pleadings. Plaintiffs will therefore be given one last opportunity to clarify their allegations. See Beanal v. Freeport-McMoran, Inc., 197 F.3d 161, 163 (5th Cir. 1999) (approving the court's sua sponte allowance of an amendment under Rule 12(e) where the plaintiff originally failed to plead with sufficient clarity).
IT IS ORDERED that defendants' Motion to Dismiss is DENIED. IT IS FURTHER ORDERED that plaintiffs are granted leave under Rule 12(e) to file an amended complaint in conformity with this Order, no later than January 10, 2003. Failure to do so shall result in the dismissal of this complaint.