Opinion
File No. 1:00-CV-844.
March 28, 2001.
ORDER
In accordance with the opinion entered this date,
IT IS HEREBY ORDERED that Plaintiff/Counter-Defendant Connecticut Indemnity Co.'s motion to dismiss Counts Three and Four of counterclaim for failure to state a claim upon which relief can be granted (Docket # 8) is GRANTED IN PART and DENIED IN PART. Plaintiff's motion to dismiss Count Three is denied and Plaintiff's motion to dismiss Count Four is granted.
IT IS FURTHER ORDERED that Count Four of Defendants' counterclaim is DISMISSED.
OPINION
This insurance coverage dispute comes before the Court on Plaintiff/CounterDefendant Connecticut Indemnity Co.'s motion to dismiss Counts Three and Four of the counterclaim filed by Defendants/Counter-Plaintiffs Spartan Travel, Inc. and Kevin Hamilton pursuant to FED. R. Cm. P. 12(b)(6) for failure to state a claim upon which relief can be granted.
To survive a motion to dismiss under Rule 12(b)(6), a complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory. Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir. 1993). In evaluating a motion to dismiss under Rule 12(b)(6) this Court treats as true all of the well-pleaded allegations of the complaint, and construes all allegations in the light most favorable to the plaintiff. Id. However, the Court need not accept as true legal conclusions or unwarranted factual inferences. Ire re Sofamor Danek Group, Inc., 123 F.3d 394, 400 (6th Cir. 1997). "In order for a dismissal to be proper, it must appear beyond doubt that the plaintiff would not be able to recover under any set of facts that could be presented consistent with the allegations of the complaint." Bower v. Federal Express Corp., 96 F.3d 200, 203 (6th Cir. 1996) (citations omitted).
I.
In Count Three of the counterclaim Defendants allege that Connecticut, the insurer, breached its duty to (i) appoint independent counsel or (ii) to allow the insureds to select their own counsel at the insurer's expense. Defendants do not deny that Connecticut did retain David Ottenwess of Wulfmeier Ottenwess as defense counsel for Spartan Travel in the underlying EEOC matter. Defendants contend, however, that Mr. Ottenwess is not independent.
There is no disagreement between the parties as to the applicable substantive law:
[U]nder Michigan law an insurer complies with its duty to defend when, after it has reserved its rights to contest its obligation to indemnify, it fully informs the insured of the nature of the conflict and selects independent counsel to represent the insured in the underlying litigation. The insured has no absolute right to select the attorney himself so long as the insurer exercises good faith in its selection and the attorney selected is truly independent.Central Michigan Board of Trustees v. Employers Reinsurance Corp., 117 F. Supp.2d 627, 634-45 (E.D. Mich. 2000) (citing with approval Federal Ins. Co. v. X-Rite, Inc., 748 F. Supp. 1223 (W.D.Mich. 1990) (Bell, J.)). Connecticut does not dispute that lack of independence in the defense counsel selected by the insurer could form the basis for a viable cause of action. Connecticut argues, however, that Defendants have failed to allege sufficient facts to support this claim. Connecticut argues that there are no factual allegations to support the assertion that Connecticut failed to exercise good faith in the selection of defense counsel, or to support the assertion that defense counsel selected by Connecticut is not "truly independent."
A complaint need not set down in detail all the particularities of a party's claim. It is sufficient if it gives fair notice of what the claim is and the grounds upon which it rests. Gazette v. City of Pontiac, 41 F.3d 1061, 1064 (6th Cir. 1994) (citations omitted). Dismissal would be proper only if it appeared beyond doubt that Defendants would not be able to recover under any set of facts that could be presented consistent with the allegations of the counterclaim. Bower, 96 F.3d at 203. Defendants' counterclaim gives fair notice of a viable claim that could conceivably be supported by facts that could be presented consistent with the allegations of the counterclaim. Whether or not Defendants will ultimately be able to come forward with facts to support those allegations is not a proper issue for this Court's consideration in a Rule 12(b)(6) motion to dismiss. Plaintiff's motion to dismiss Count Three of the counterclaim will accordingly be denied.
II.
Count Four of the counterclaim alleges that Connecticut breached its duty of good faith and fair dealing by (i) refusing to assume defense of Spartan Travel prior to October 23, 2000; (ii) refusing to assume the defense of Hamilton; (iii) refusing to appoint independent counsel for either of the Defendants; and (iv) refusing to allow the Defendants the choice of selecting their own counsel at the Insurer's expense. Counterclaim, ¶¶ 61-63.
In their response to the motion to dismiss Defendants now clarify that Count Four of the counterclaim is a breach of contract claim rather than a tort claim. Accordingly, Defendants request to withdraw the allegations of paragraphs 57 and 71 which allege emotional distress, as well as their claim for damages for emotional distress and/or exemplary damages.
Connecticut does not dispute that an insurer owes a duty to act in good faith toward its insured, and that breach of the duty of good faith can give rise to a breach of contract claim. Connecticut argues, however, that Count Four, as amended, adds nothing to the breach of contract claims alleged in Counts One and Two of the counterclaim which are based upon the alleged breach of the duty to defend under Coverage A and Coverage C of the contract.
This Court agrees. None of the cases cited by Defendants stands for the proposition that it has two causes of action arising out of the breach of the duty to defend — one for breach of contract and one for bad faith breach of contract. See, Frankenmuth Mut. Ins. Co. v. Keeley, 436 Mich. 372, 461 N.W.2d 666 (1990); Stockdale v. Jamison, 416 Mich. 217, 330 N.W.2d 389 (1982); Roskam Baking Co. v. Northern Ins. Co. of New York, 1999 U.S. Dist. LEXIS 7972 (Case No. 1; 97-CV-707, (W.D.Mich. May 19, 1999) (Enslen, C.J.), Tiscornia v. Travelers Corp., No. 1:95-CV-862, 1996 U.S. Dist. LEXIS 17691 (W.D.Mich. Oct. 28, 1996) (Enslen, C.J.). In fact, it is clear upon reading these cases that Michigan courts would not allow two separate causes of action for breach of the duty to defend and bad faith breach of the duty to defend.
The Michigan Supreme Court addressed the duty to defend in Stockdale:
The duty to defend, however, arises solely from the language of the insurance contract. A breach of that duty can be determined objectively, without reference to the good or bad faith of the insurer. If the insurer had an obligation to defend and failed to fulfill that obligation, then, like any other party who fails to perform its contractual obligations, it becomes liable for all foreseeable damages flowing from the breach.Stockdale, 416 Mich. at 224.
In the commercial contract situation, unlike the tort and marriage contract actions, the injury which arises upon a breach is a financial one, susceptible of accurate pecuniary estimation. The wrong suffered by the plaintiff is the same, whether the breaching party acts with a completely innocent motive or in bad faith.
Id. (quoting Kewin v. Massachusetts Mut. Life Ins. Co., 409 Mich. 401, 420, 295 N.W.2d 50 (1980)). As Chief Judge Enslen noted in Roskam, "[t]he bad faith moniker is just a characterization of the breach." 1999 U.S. Dist. LEXIS 7972 at *24. Similarly, in Tiscornia he noted that "the bad faith claim is not separate, but rather is a part of the breach of contract claim, in that it alleges that defendants breached their contracts in bad faith." 1996 U.S. Dist. LEXIS 17691, at *29.
Count Four of Defendants' counterclaim fails to state a separate claim upon which relief can be granted. Accordingly, Plaintiff's motion to dismiss Count Four of the counterclaim will be granted.
An order consistent with this opinion will be entered.