Opinion
NO. 1:07-CV-00151.
March 4, 2008
OPINION AND ORDER
This matter is before the Court on Defendants' Motion to Dismiss Amended Class Action Complaint (doc. 44), Plaintiff's Memorandum in Opposition (doc. 50), and Defendants' Reply (doc. 54). The Court held a hearing on this matter on February 28, 2008. For the reasons indicated herein, the Court DENIES Defendants' Motion in all respects.
I. Background
II. Defendants' Motion to Dismiss
Id Id Id129Id A. The Applicable Standards
Defendants Canada Life Assurance Company and Canada Life Insurance Company of America purchased Crown in 1999, thus succeeding to Crown's contracts and liabilities. The Court will refer to Defendants collectively as "Crown." The Court will also refer to "Plaintiff" in the singular, because as of yet, no class has been certified in this matter.
A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) requires the Court to determine whether a cognizable claim has been pleaded in the complaint. The basic federal pleading requirement is contained in Fed.R.Civ.P. 8(a), which requires that a pleading "contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief." Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir. 1976). In its scrutiny of the complaint, the Court must construe all well-pleaded facts liberally in favor of the party opposing the motion. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). Rule 8(a)(2) operates to provide the defendant with "fair notice of what plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47 (1957). A court examines a complaint in light of the objectives of Rule 8 using the standard articulated in Jones v. Sherrill, 827 F.2d 1102, 1103 (6th Cir. 1987):
In reviewing a dismissal under Rule 12(b)(6), the court must accept as true all factual allegations in the complaint. Windsor v. The Tennessean, 719 F.2d 155, 158 (6th Cir. 1983), cert. denied, 469 U.S. 826 (1984). The motion to dismiss must be denied unless it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim which would entitle her to relief. Id. at 158; Conley v. Gibson, 355 U.S. 41 (1957).Jones, 824 F.2d at 1103.
The admonishment to construe the plaintiff's claim liberally when evaluating a motion to dismiss does not relieve a plaintiff of his obligation to satisfy federal notice pleading requirements and allege more than bare assertions of legal conclusions. Wright, Miller Cooper, Federal Practice and Procedure: § 1357 at 596 (1969). "In practice, a complaint . . . must contain either direct or inferential allegations respecting all of the material elements [in order] to sustain a recovery under some viable legal theory." Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984), quoting In Re: Plywood Antitrust Litigation, 655 F.2d 627, 641 (5th Cir. 1981); Wright, Miller Cooper, Federal Practice and Procedure, § 1216 at 121-23 (1969). The United States Court of Appeals for the Sixth Circuit clarified the threshold set for a Rule 12(b)(6) dismissal:
[W]e are not holding the pleader to an impossibly high standard; we recognize the policies behind Rule 8 and the concept of notice pleading. A plaintiff will not be thrown out of court for failing to plead facts in support of every arcane element of his claim. But when a complaint omits facts that, if they existed, would clearly dominate the case, it seems fair to assume that those facts do not exist.Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 437 (6th Cir. 1988).
A motion to dismiss for failure to plead fraud with particularity is governed by Fed.R.Civ.P. 9(b), which requires that averments of fraud must be stated with particularity. The Sixth Circuit reads this rule liberally, however, requiring a plaintiff, at a minimum, to "allege the time, place, and content of the alleged misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud." Coffey v. Foamex L.P., 2 F.3d 157, 161-62 (6th Cir. 1993) (quoting Ballan v. Upjohn Co., 814 F. Supp. 1375, 1385 (W.D. Mich. 1992)). However, "allegations of fraudulent misrepresentation must be made with sufficient particularlity and with sufficient factual basis to support an inference that they were knowingly made." Id. The threshold test is whether the Complaint places the defendant on "sufficient notice of the misrepresentation," allowing the defendants to "answer, addressing in an informed way plaintiff's claim of fraud." Brewer v. Monsanto Corp., 644 F. Supp. 1267, 1273 (M.D. Tenn. 1986).
B. Plaintiff's Contract Claims
1. Defendants' Motion
Defendants argued at the hearing and in their motion that Plaintiff has failed to allege the existence of a binding contract to provide coverage termination dates contained in the inaccurate reports because 1) according to terms of the policy, the inaccurate reports cannot be considered part of the insurance contract that states on its face that the policy and attached application papers constitutes the entire contract, 2) the inaccurate reports are not incorporated by reference into the insurance contract, which merely requires the company to send an annual report, but which does not make the contents of such reports part of the contract, 3) the inaccurate reports cannot otherwise be used to supplement or alter the contract of insurance (doc. 44). Second, Defendants argue that Plaintiff has failed to allege the terms of a contract to provide coverage through a guaranteed date, and such failure to allege such terms with specificity is fatal to the contract claims (Id.). Defendants argue third that Plaintiff's claim for breach of the Annual Report Provision of the policy is nothing more than a reiteration of his claims for misrepresentation (Id.).
2. Plaintiff's Response
Plaintiff argues in Response that his Complaint need only provide Defendants with fair notice of his claim, and as such, should not be dismissed under Rule 12(b)(6) (doc. 50). Plaintiff argues he states a claim for breach of contract because Crown failed to provide the coverage it promised and failed to provide accurate annual reports (Id.). Plaintiff argues even if the annual reports are not considered part of the contract, Defendants failed to provide true and accurate annual reports, which in Plaintiff's view is a breach of the duty to provide annual reports (Id.). Plaintiff further argues that the question of which documents constitute the contract cannot be resolved in a motion to dismiss, as this is a question of fact to be resolved by a jury (Id.).
Plaintiff next argues that the insurance policy is ambiguous, and the ambiguity cannot be resolved in a motion to dismiss (Id.). Plaintiff argues the ambiguity is that policy requires an examination of annual reports and refers to "guaranteed policy values" (Id.). In Plaintiff's view, the annual report is the only document where Defendants provide "guaranteed policy values" referred to in the policy (Id.). As such, the contract is missing an essential term — the duration of the obligation, and Plaintiff argues parol evidence is admissible so the Court can construe the ambiguity or missing term (Id.). Plaintiff argues the Court should follow its holding inGallenstein Bros. Inc. v. General Accident Insurance Company, 178 F. Supp.2d 907 (S.D. Ohio, 2001) in which the Court looked outside the four corners of the policy to determine coverage, and do the same here in interpreting the contract (Id.).
3. Defendants' Reply
Defendants argued at the hearing and in their Reply that Plaintiff has continued to receive the benefits of the policy through the present day, and that Defendants worked to correct the computer error and notified Plaintiff of it (doc. 54). Defendants argue that Plaintiff therefore suffered no injury, and that Defendants acted in good faith (Id.). Defendants argue the policy contains an unambiguous termination provision stating that the policy will terminate 1) upon the insured's written request, 2) at the end of the grace period, 3) on the death of the insured, or 4) on the maturity date (Id.). The "grace period" provision states that coverage under the Policy will terminate without value, following a grace period, if the policy's net cash value will not cover the monthly deduction for the following month (Id.). Defendants argue there is no ambiguity to such provision (Id.).
Defendants next argue that Gallenstein is inapplicable, because in that case the Court relied on parole evidence created during the creation of the policy, as opposed to the annual reports in this case, sent years after the parties signed the contract (Id.). Defendants also argue that Plaintiff's alleged failure to specify the dates relating to the guarantees begs the question as to whether his claim is ripe for judicial review (Id.).
4. Plaintiff's Complaint in Contract Survives
Having reviewed this matter, the Court finds Plaintiff has sufficiently pleaded a claim for breach of contract. Defendants admit that Crown provided Plaintiff with inaccurate reports for some five years, and the reports are clearly a material term required by the contract. In the Court's view, the contract required Crown to provide accurate annual reports, and Crown did not. The Court further finds it premature to rule on whether the annual reports constitute a part of the contract, as the contract terms requiring an examination of annual reports and referring to "guaranteed policy values" can be viewed in conflict with other terms relating to termination of the contract. As such, the Court finds adequate ambiguity such that the factual question of whether the annual reports are part of the contract is appropriate for a jury. Dick Sherman Disposal Co., Inc. v. Village Square Apartments, No. CA-3195, 1986 Ohio App. LEXIS 8937, *1, *6 (Ct. App. Ohio, October 30, 1986). For these reasons, Plaintiff's contract claims survive Defendants' motion to dismiss.
C. Plaintiff's Fraud and Negligent Representation Claims
1. Defendants' Motion
As for Plaintiff's fraud and negligent representation claims, Defendants argue Plaintiff fails to plead the essential elements (doc. 44)). Under Ohio law, the essential elements for a fraud claim are 1) a false representation concerning a fact material to the transaction, 2) knowledge of the falsity, or such utter disregard as to warrant an inference of knowledge, 3) intent to induce reliance, 4) justifiable reliance, and 5) injury proximately caused by the reliance (Id. citing Russ v. TRW, Inc., 570 N.E. 2d 1076, 1083 (Ohio 1991)). Defendants argue the essential elements for negligent misrepresentation are sufficiently similar under the Restatement to warrant discussing them alongside the elements of fraud (Id.). Specifically, Defendants argue Plaintiff cannot allege the requisite "justifiable reliance" on the inaccurate reports so as to state a claim for either fraud or negligent misrepresentation (Id.). Defendants contend that because Plaintiff received accurate termination dates in the annual reports from 1997 when he initiated a material change in the amount of the planned premium, until March 31, 2001, the date on which the first of the inaccurate reports was issued, Plaintiff had more than sufficient reason to doubt and question the accuracy of the substantially different projected coverage termination dates contained in the inaccurate reports (Id.).
Defendants further argue that Plaintiff fails to plead fraud with particularity under Fed.R.Civ.P. 9(b), because Plaintiff failed to allege justifiable reliance, and fails to allege with particularity the content of the representations, that is, what the dates through which coverage was guaranteed (Id.).
2. Plaintiff's Response
Plaintiff argues he properly alleges justifiable reliance and therefore has pled the essential elements of fraud and negligent misrepresentation (doc. 50). Plaintiff argues Defendants' position is that Plaintiff should have doubted the accuracy of Defendants' own statements, and that in any event, whether a party's reliance is justifiable is a question of fact for the jury (Id.).
Plaintiff further argues the Complaint satisfies the particularity requirements of Rule 9(b) as it alleges the time and place of the misrepresentation (in the annual report), the content of the misrepresentation (the guaranteed coverage that would be provided and also the accounting for the riders), that Defendants knew of the falsity of their representations, and that Plaintiff suffered an injury (Id.). Plaintiff argues he does not need to aver a specific date through which coverage was falsely guaranteed, as he alleged specifically that the annual reports omitted or falsely represented that Defendants were deducting the cost of the riders from the accumulation value of Plaintiff's policy (Id.). Moreover, he argues that the exact time period of coverage varies for each member of the class, but that he did allege that Defendants shortened the coverage it had previously guaranteed by several months or even years (Id.).
3. Defendants' Reply
In their Reply Defendants reiterate their position that Plaintiff was unjustified to rely on the inaccurate reports based on the fact that he had received accurate reports and should have doubted and questioned the inconsistent fifteenth report (doc. 54). Defendants also reiterate in their view that Plaintiff has failed to plead fraud with particularity as he had not specified the precise date through which Crown had indicated Plaintiff had insurance coverage in the inaccurate report (Id.).
4. Plaintiff's Fraud and Misrepresentation Claims Survive
Having reviewed the question of the viability of Plaintiff's fraud and misrepresentation claims, the Court concludes he has adequately pleaded such claims. The Amended Complaint alleges that as early as June 2003 Crown knew that the figures it provided in the "Continuation of Insurance" section contained in its annual reports was incorrect, but that it failed to disclose such information for almost two years (doc. 37). Such allegation is sufficient, in the Court's view, to show Defendants made a false representation of a material fact so as to induce the Plaintiff and other similarly-situated policy holders to maintain their coverage with Crown. Plaintiff alleges he relied on the representations in the annual reports as the only source of information as to when the policy would expire (doc. 37). The Court finds that an insured should be able to justifiably rely on reports an insurance company provides as to the duration of his policy with the company. As a result of his reliance in this instance, the Complaint alleges, Plaintiff must spend over $5,000 above the planned premiums to maintain the coverage through the dates originally reported by Defendants (Id.). Under these circumstances, the Court finds no basis to dismiss Plaintiff's fraud and misrepresentation claims for failure to state a claim.
The Court further finds well-taken Plaintiff's position that he stated his claim with adequate particularity to withstand Defendants' Rule 9(b) challenge. Plaintiff clearly pleaded that Crown made a false representation at the time it issued the annual reports, over a five year period, and has pleaded the nature of the representation, that Crown knew of the falsity of the representation, and that he suffered economic loss.
D. Plaintiff's Claim for Breach of Fiduciary Duty
1. Defendants' Motion
As for Plaintiff's claim for breach of fiduciary duty, Defendants argue the following essential elements must be plead, 1) the existence of a duty arising from a fiduciary relationship, 2) a failure to observe the duty, and 3) an injury resulting proximately therefrom. Defendants argue that under Ohio law, an insurance company does not have a fiduciary relationship with its customers (doc. 44). citing Wodrich v. Farmers Ins. Of Columbus, Inc., No. 98 CA 103, 1999 WL 317448, at *26 (Ohio Ct.App. May 21, 1999)). Even if it can be alleged that such a relationship exists, Defendants argue Plaintiff has failed to allege the existence of a contract that obligated it to provide Plaintiff with guaranteed coverage until one of the unspecified projected coverage termination dates contained in the inaccurate reports (Id.). Moreover, argue Defendants, because its issuance of inaccurate reports was neither intentional nor related to the handling or payment of claims, Crown's actions cannot constitute a breach of fiduciary duty (Id.).
2. Plaintiff's Response
Plaintiff argues that Wodrich is inapplicable to the facts of this case and to the question of fiduciary duty, as it held that an insurance company does not have a duty to advance the political interests of its customers (doc. 50). Plaintiff argues that it is well-settled that an insurance company has a fiduciary duty toward an insured in carrying out its duties under the contract. (Id. citing Red Head Brass, Inc. v. Buckeye Union Ins. Co., 135 Ohio App.3d 616, 632 (Ct.App. Ohio, 1999). Plaintiff argues he has adequately alleged Defendants breached their fiduciary duties by failing to perform in accordance with their contractual obligations and representation, and by engaging in dishonest and deceitful conduct with respect to its inclusion of rider premiums in the premium calculation and guarantees of coverage (Id.). Plaintiff argues Defendants' own documents show they knew of the calculation problem for at least two years and did nothing to fix it (Id.).
3. Defendants' Reply
Defendants argue that the authorities supporting the theory of a fiduciary duty between the insurer and insured go to the duty to act in good faith to accept reasonable settlements and in handling claims (doc. 54). Defendants argue there are no other extra-contractual duties, and as this case does not involve the settlement of a claim, fiduciary theory is inapplicable (Id.).
4. Plaintiff's Claim for Breach of Fiduciary Duty Survives
The existence of a de facto fiduciary relationship is a question of fact and depends on the circumstances of the case.Prudential Ins. Co. v. Eslick, 586 F. Supp. 763, 766 (S.D. Ohio, 1984). The Court finds it premature to rule on the existence of such a relationship in this case, absent further development of the evidence of the dealings between the parties. Inasmuch as Crown possessed knowledge for two years that it withheld from Plaintiff, it is not difficult to conclude it stood in an unequal position in relation to its policy holder. Plaintiff's allegations based on fiduciary theory are broad enough, therefore, to survive Defendants' preliminary challenge.
E. Defendants' Invocation of the Economic Loss Doctrine
Defendants further attack Plaintiff's claims for fraud, negligent misrepresentation, and breach of fiduciary duty under the theory that such claims are barred by the economic loss doctrine (doc. 44). Under such doctrine, a party cannot recover in tort for purely economic damages (Id.). Defendants argue that because Plaintiff has not alleged any non-economic harm, the claims should be dismissed as duplicative of Plaintiff's breach of contract claim (Id.). Finally, Defendants argue that Plaintiff's claims for declaratory and injunctive relief should be dismissed as they are remedies and not causes of action (Id.).
Plaintiff contends that Defendants misapprehended the application of the economic loss doctrine because such doctrine applies to commercial settings, and not to a setting where consumers are presented with an adhesion boilerplate form contract (doc. 50). Plaintiff argues the doctrine normally bars negligence claims, but is inapplicable to negligent misrepresentation and fraud claims (Id. citing Corporex Dev. Constr. Mgmt v. Shook, Inc., 106 Ohio St.3d 412, 825 N.E.2d 701 (2005) (recognizing exception to the economic loss rule for negligent representation), and Onyx Environmental Services, LLC v. Maison, 407 F.Supp.2d 874, 879 (N.D. Ohio 2005)). Moreover, argues Plaintiff, the doctrine cannot bar his fiduciary duty claim, because such duty arises from the relationship between the parties and the common law, not from a contractual duty. In Reply, Defendants argue the economic loss doctrine does apply here because the exceptions Plaintiff cites only apply to those not in contractual privity with the party against whom the claim is brought (doc. 54).
The Court finds Defendants' contention mistaken that Plaintiffs have only requested relief that is duplicative of damages in contract. The Amended Complaint seeks "Judgment against Defendants for punitive damages" (doc. 37). The fact that Plaintiff has pleaded punitive damages, in the Court's view, precludes Defendants' invocation of the economic loss doctrine.
F. Final Matters.
As a final matter, Defendants argue Plaintiff has failed to state a claim for declaratory and injunctive relief, because these claims are remedies and not causes of action (doc. 44,citing Weiner v. Klais Co, Inc., 108 F.3d 86, 92 (6th Cir. 1997). Plaintiff argues in response that Defendants' form over substance argument should be rejected, and that nothing precludes the application of such remedies to the other causes of action he has pled (doc. 50). In the alternative, Plaintiff argues the Complaint states claims for declaratory and injunctive relief, because such actions are permitted with respect to the construction and interpretation of contracts (Id. citing Ohio Rev. Code § 2721.04).
The Court finds Plaintiff's position well-taken that should he prevail on any of his causes of action, he may very well be entitled to declaratory and/or injunctive relief. Therefore, though the Court "notes the technical accuracy of the distinction identified" by the Defendants, the dismissal of such claims would "elevate form over substance." Ripple Junction Design Co. v. Olaes Enterprises, Inc., No. 05-CV-0043, 2005 U.S. Dist. LEXIS 32866 *1, *14 (S.D. Ohio, September 8, 2005) (J. Beckwith).
As a final matter, the Court also notes that Defendants argue that Plaintiff has misstated the standard for dismissal under Rule 12(b)(6), in relying heavily on the "no set of facts" language employed in Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (doc. 54). Defendants invoke the Supreme Court's recent decision in Bell Atlantic Corp. v. Twombly, 127 S. Ct 1955, 1969 (2007), in which it stated the phrase "no set of facts," is "best forgotten as an incomplete, negative gloss on an accepted pleading standard: once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Defendants argue Plaintiff's Complaint fails to rise above the speculative level, and thus runs afoul of Bell Atlantic v. Twombly (Id.).
The Court is unconvinced that even if such a heightened standard is applicable to the facts of this case, Plaintiff's Complaint fails to rise above the level of speculation. Moreover, the Court notes that after the Supreme Court issued the Bell Atlantic decision, it reaffirmed that Rule 8(a) "requires only a short and plain statement of the claim showing that the pleader is entitled to relief." Erikson v. Pardus, 127 S. Ct. at 2200 (2007). Plaintiff has met such requirement.
III. Conclusion
For the reasons indicated herein, the Court concludes that Plaintiff's claims survive Defendants' various challenges as presented in their Motion to Dismiss. Accordingly, the Court DENIES Defendants' Motion to Dismiss Amended Class Action Complaint (doc. 44).
SO ORDERED.