Opinion
1:22-CV-1238-RP
05-17-2023
STEPHEN BUTTS, Plaintiff v. STATE AUTOMOBILE MUTUAL INSURANCE COMPANY, Defendant
TO: THE HONORABLE ROBERT PITMAN, UNITED STATES DISTRICT JUDGE
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
DUSTIN M. HOWELL, UNITED STATES MAGISTRATE JUDGE
Before the Court is State Automobile Mutual Insurance Company's (“State Auto”) Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6), Dkt. 3, and all related briefing. After reviewing these filings and the relevant case law, the undersigned issues the following report and recommendation recommending that State Auto's Motion be granted.
I. BACKGROUND
This is an underinsured motorist (“UIM”) coverage dispute arising from a collision involving Plaintiff Stephen Butts and Julio Gonzalez-Rodriguez, an UIM. Dkt. 1-3, at 3. Butts claims that he was rear ended by Gonzalez-Rodriguez on the Mopac Expressway in Austin, Texas. Id. at 3. At the time of the collision Butts was driving a company vehicle insured by Defendant, State Auto, which provided UIM coverage. Id. After the collision, Butts filed a bodily injury claim with Gonzalez- Rodriguez's insurance carrier, Progressive County Mutual Insurance Company (“Progressive”) and settled his claim for the full, available, policy limit of $30,000.00. Id. Butts also filed a claim with State Auto since he was not fully compensated by Progressive for his injuries and property damage. Id. Butts's State Auto UIM claim was assigned to an adjuster who allegedly failed to perform a proper investigation, failed to offer a fair and prompt settlement, failed to provide a copy of the policy to Butts, and refused to pay Butts's claim. Id. at 4.
For State Auto's acts and omissions in handling his claim and refusing to pay or adequately settle his claim, Butts brings five causes of action for: breach of the duty of good faith and fair dealing; violations of Chapters 541 and 542 of the Texas Insurance Code (“TIC”); negligence and misrepresentation; and violations of the Texas Deceptive Trade Practices Act (“DTPA”). Id. at 5-9. Butts also seeks declaratory relief under the Uniform Declaratory Judgment Act (“UDJA”) and asks the Court to declare that he is covered under his employer's State Farm policy, entitled to UIM coverage, and that Gonzalez-Rodriguez is an underinsured driver whose negligence caused the collision and Butt's injuries. Id. at 10.
Butts filed his original petition in the 126th Judicial District Court of Travis County, Texas, on October 14, 2022. See Dkt. 1-3. Subsequently, State Auto filed a Notice of Removal to Federal Court on diversity grounds. See Dkt. 1. State Farm now moves to dismiss Butts's petition arguing each of his claims requires him to show that State Farm acted in bad faith which he cannot do because he cannot make the predicate showing that State Auto breached the insurance contract. Dkt. 3, at 8. State Farm argues that in order to show that State Auto breached the insurance contract, Butts needs to allege the existence of a judgment establishing the liability of the tortfeasor. Id. In this context, Butts would need to plead the existence of a judgment establishing Gonzalez-Rodriguez's negligence and underinsured status but has not done so. Id.
State Farm contends that even if the Court finds that Butts can make the predicate showing of breach of the insurance contract, each of his claims fails for other reasons, namely: (1) Butts's TIC claims merely restate statutory language and are factually insufficient; (2) Butts has not alleged that State F arm's violations of the TIC and DTPA were the producing cause of his damages; (3) Butts's DTPA claim does not allege that he relied on State Auto's acts as required by the DTPA; and (4) Butts does not meet the heightened pleading standard under Fed.R.Civ.P. 9 for claims for fraud, misrepresentation, and negligence. Id. at 8-17. State Farm does not move to dismiss Butts's declaratory judgment action. Id. at 18.
Butts responds only to State Auto's argument that his extracontractual claims require proof of a judgment as to Gonzalez-Rodriguez's liability and underinsured status. Dkt. 5, at 2. Butts responds that “courts have allowed Plaintiffs to bring a declaratory action to determine liability of another driver” while simultaneously litigating extra contractual claims regarding coverage. Id. at 2.
II. LEGAL STANDARD
Pursuant to Rule 12(b)(6), a court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In deciding a 12(b)(6) motion, a “court accepts ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)). “To survive a Rule 12(b)(6) motion to dismiss, a complaint ‘does not need detailed factual allegations,' but must provide the plaintiff's grounds for entitlement to relief-including factual allegations that when assumed to be true ‘raise a right to relief above the speculative level.'” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). That is, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).
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.” Id. “The tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. A court ruling on a 12(b)(6) motion may rely on the complaint, its proper attachments, “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir. 2008) (citations and internal quotation marks omitted). A court may also consider documents that a defendant attaches to a motion to dismiss “if they are referred to in the plaintiff's complaint and are central to her claim.” Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004).
But because the court reviews only the well-pleaded facts in the complaint, it may not consider new factual allegations made outside the complaint. Dorsey, 540 F.3d at 338. “[A] motion to dismiss under 12(b)(6) ‘is viewed with disfavor and is rarely granted.'” Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011) (quoting Harrington v. State Farm Fire & Cas. Co., 563 F.3d 141, 147 (5th Cir. 2009)).
III. DISCUSSION
State Auto argues that Butts's claims for breach of the duty of good faith and fair dealing, violations of the TIC, and violations of the DTPA must be dismissed because each claim depends on State Auto's “contractual obligation to pay UIM benefits, which has not yet arisen.” Dkt. 3, at 5. Further, State Auto argues that it is “under no contractual duty to pay benefits until [Butts] obtains a judgment establishing the liability and underinsured status of the other motorist.” Id. (citing In re State Farm Mut. Auto. Ins. Co., 553 S.W.3d 557, 559 (Tex. App.-San Antonio 2018, orig. proceeding) (citing Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809, 818 (Tex. 2006)). Butts has not pleaded the existence of a judgment establishing Gonzalez-Rodriguez's liability or underinsured status.
In Texas, a breach of the common-law duty of good faith and fair dealing requires proof of a breach of contract accompanied by an independent tort. Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 17 (Tex. 1994). “Generally, an insured cannot maintain a common law bad faith claim where the breach of contract claim fails.” Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995); Blum's Furniture Co. v. Certain Underwriters at Lloyds London, No. H-09-3479, 2011 WL 819491, at *3 (S.D. Tex. Mar 02, 2011), aff'd, 459 Fed.Appx. 366 (5th Cir. 2012). The only recognized exceptions to this rule are if the insurer “commit[s] some act, so extreme, that would cause injury independent of the policy claim,” or fails “to timely investigate the insured's claim.” Stoker, 903 S.W.2d at 341. This same standard applies to liability under Chapter 541 of the Texas Insurance Code (Unfair Methods of Competition and Unfair or Deceptive Acts or Practices). See Progressive County Mut. Ins. Co. v. Boyd, 177 S.W.3d 919, 922 (Tex. 2005) (an insurer's liability for violation of the Texas Insurance Code and Deceptive Trade Practices Act incorporate the same standard as common law bad faith); Spicewood Summit Office Condos. Ass'n, Inc. v. Amer. First Lloyd's Ins. Co., 287 S.W.3d 461, 468 (Tex. App.-Austin 2009, pet. denied) (same); see also Douglas v. State Farm Lloyds, 37 F.Supp.2d 532, 544 (S.D. Tex. 1999) (extra contractual tort claims pursuant to the Texas Insurance Code and Deceptive Trade Practices Act require the same predicate for recovery as bad faith causes of action). The Texas Supreme Court recently recognized that “a successful independent-injury claim would be rare, and we, in fact, have yet to encounter one.” USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 500 (Tex. 2018).
The State of Texas requires automobile insurance providers to provide UIM coverage which “protects insureds who are legally entitled to recover from owners or operators of uninsured or underinsured motor vehicles ....” Tex. Ins. Code § 1952.101(a) (emphasis added). To be legally entitled to recover benefits under a UIM insurance policy, an insured must establish the liability of an uninsured/underinsured motorist and the extent of the damages. Brainard, 216 S.W.3d at 818 (interpreting prior version of statute); In re Koehn, 86 S.W.3d 363, 367 (Tex. App.-Texarkana 2002, no pet.). “Neither requesting UIM benefits nor filing suit against the insurer triggers a contractual duty to pay.” Brainard, 216 S.W.3d at 818. Thus, under a UIM policy, receipt of benefits, “are conditioned upon the insured's legal entitlement to receive damages from a third party.” Brainard, 216 S.W.3d at 818; see In re Koehn, 86 S.W.3d at 367-68.
To determine the liability of an uninsured motorist, the insured may obtain a judgment against the tortfeasor. Borg v. Metro. Lloyd's of Tex., W:12-CV-256, 2013 WL 12091651, at *2 (W.D. Tex. Feb. 21, 2013); Brainard, 216 S.W.3d at 818. Alternatively, the insured may litigate UIM coverage with the insurer; however, “due to the unique terms of UM/UIM coverage,” when proceeding in federal court, the proper vehicle to bring such a claim is through a declaratory judgment action. Borg, 2013 WL 12091651, at *2 (citing Accardo v. Am. First Lloyds Ins. Co., CIV.A. H-11-0008, 2012 WL 1576022, at *5 n.3 (S.D. Tex. May 3, 2012)); see also Cantwell v. Sentry Select Ins. Co., SA-18-CA-193-FB, 2019 WL 5455008, at *3 (W.D. Tex. Mar. 22, 2019).
Butts does not claim that he obtained a judgment establishing Gonzalez-Rodriguez's liability, uninsured status, and any consequential damages incurred. In reliance on Allstate Insurance Co. v. Irwin and its progeny, Butts argues that “courts have allowed Plaintiffs to bring a declaratory action to determine liability of another driver and insured status while simultaneously litigating UIM coverage.” Dkt. 5, at 2 (citing 627 S.W.3d 263, 267 (Tex. 2021); Valdez v. Allstate Fire & Cas. Ins. Co., No. SA-21-CV-00494-XR, 2021 WL 4340973, at *4 (W.D. Tex. Sep. 22, 2021)). However, in Irwin, the question before the Court was not whether a declaratory judgment action to determine a tortfeasor's liability and insured status can be brought at the same time as UIM coverage claims.
Rather, the “question [was] whether an insurance carrier's liability for benefits under the UIM policy may be established in a declaratory judgment action.” Irwin, 627 S.W.3d at 265. In Irwin, the Texas Supreme Court affirmed the lower courts' decision that indeed, the “[UDJA] can be used for this purpose.” Id. at 266. Here, State Auto does not dispute that a declaratory judgment action against it (as opposed to Gonzalez-Rodriguez) can be used to determine its liability for benefits. Accordingly, State Auto does not move to dismiss Butts's declaratory judgment action.
Irwin left intact the principles that a “carrier [is] under no obligation to pay ... benefits until the insured [obtains] a judgment establishing the liability” of the motorist and that breach of the insurance agreement “cannot occur until the underlying conditions precedent of liability and damages are established.” Id. at 267. Because State Auto's contractual duty to pay UIM benefits under the policy does not arise until Butts obtains a judgment establishing the liability and underinsured status of Gonzalez-Rodriguez, Butts's causes of action based on State Auto's failure to pay UIM benefits are premature. Accardo, 2012 WL 1576022, at *3.
“A case or controversy must be ripe for decision, meaning that it must not be premature or speculative.” Shields v. Norton, 289 F.3d 832, 834-35 (5th Cir. 2002). “Generally, issues are not ripe if ‘further factual development is required.'” Anderson v. Sch. Bd. of Madison Cnty., 517 F.3d 292, 296 (5th Cir. 2008). “If the purported injury is contingent on future events that may not occur as anticipated, or indeed may not occur at all, the claim is not ripe for adjudication.” Lopez v. City of Houston, 617 F.3d 336, 342 (5th Cir. 2010). Until a claim is ripe, the Court lacks subject matter jurisdiction because it has no power to decide disputes that are not yet justiciable. Id. at 341. Thus, when a case is abstract or hypothetical, the court should dismiss for lack of subject matter jurisdiction, rather than failure to state a claim. Monk v. Huston, 340 F.3d 279, 282 (5th Cir. 2003).
Butts's purported injuries related to State Auto's treatment of his UIM claim are contingent on future events, namely, a determination as to his entitlement to benefits, that may not occur as anticipated, or at all. Until Butts litigates the tortfeasor's liability in this action and obtains a judgment with a determination of damages, any related or consequential cause of action is not ripe. Here, State Auto moved for dismissal for failure to state a claim under 12(b)(6); however, this Court lacks subject matter jurisdiction to adjudicate the asserted causes of action based upon lack of ripeness. Therefore, Butts's claims for breach of the duty of good faith and fair dealing, violation of Chapters 541 and 542 of the TIC, negligence and misrepresentation, and violations of the DTPA should be dismissed.
Due to the unique terms of UIM coverage, the proper vehicle to litigate a tortfeasor's liability and any resulting damages directly against the insurer is through Butt's remaining request for declaratory relief. See Borg, 2013 WL 12091651, at *2 (stating that if an insured chooses to proceed directly against the insurer, rather than the alleged tortfeasor, and the action proceeds in federal court, this judgment may be obtained through a declaratory judgment of liability). As stated above, State Auto does not contest this procedural vehicle or seek dismissal of the alternative request for declaratory relief under the UDJA. Therefore, Butts's request for declaratory relief is the only live cause of action and should proceed.
IV. RECOMMENDATION
In accordance with the foregoing discussion, the undersigned RECOMMENDS that the District Court GRANT State Auto's Motion to Dismiss, Dkt. 3, and DISMISS WITHOUT PREJUDICE Butts's claims for: breach of the duty of good faith and fair dealing; violation of Chapters 541 and 542 of the TIC; negligence and misrepresentation; and violations of the DTPA.
V. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The district court need not consider frivolous, conclusive, or general objections. See Battle v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987). A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen days after the party is served with a copy of the Report shall bar that party from de novo review by the district court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the district court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).