Lawyers handling insurance claims that have been denied frequently have a conversations with clients about “bad faith” insurance. Bad faith, generally speaking, often times centers around whether or not an insurance company has committed a fraud.
If allegations of fraud are going to be alleged, insurance lawyers need to understand that those claims that end up in a Federal Court are subjected to a higher pleading standard than those claims that are litigated in State or County Courts. This is illustrated in a 2021, opinion from the Southern District of Texas, Galveston Division. The opinion is styled, Smiley Team II, Inc. v. General Star Insurance Company.
Smiley made a claim against General Star after a vehicle was alleged to have crashed into Smiley’s building. A lawsuit was eventually filed containing allegations that General Star failed to properly adjust the claim which resulted in an alleged underpayment of the claim.
Smiley alleged a number of causes of action against General Star, one of which was an allegation fraud. General Star filed a motion for partial dismissal of the fraud claim.
Federal Rule of Civil Procedure 12(b)(6) provides that a district court must
dismiss a complaint that fails to state a claim upon which relief can be granted. This rule is read in conjunction with the pleading standard set forth in Rule 8(a), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” To survive dismissal at this early stage, the complaint must state enough facts such that the claim to relief is plausible on its face. A claim is facially plausible when the plaintiff pleads enough facts to allow the district court to draw a reasonable inference that the defendant is liable for the misconduct alleged. Although a complaint does not need detailed factual allegations to survive a Rule 12(b)(6) motion to dismiss, a plaintiff must provide more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not
do. In deciding a Rule 12(b)(6) motion, the Court must accept all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.
Fraud allegations bear a heightened pleading standard: a party must state
with particularity the circumstances constituting fraud pursuant to Rule 9(b). This means that the party alleging fraud must specify the statements contended
to be fraudulent, identify the speaker, state when and where the statements were
made, and explain why the statements were fraudulent. In short, Rule 9(b) requires that a complaint detail the who, what, when, and where before access to the discovery process is granted. The Fifth Circuit has mandated that Rule 9(b)’s heightened pleading standard be applied with “bite” and “without apology.”
Smiley alleges in its pleadings as follows:
49. Defendant Insurer knowingly and with reckless disregard for the Plaintiff in the course of handling of this subject claim made false statements, misrepresented material facts and engaged in actions and/or omissions for the purpose of misleading Plaintiff as to the actual damages resulting from the peril and Plaintiff having relied upon such fraudulent conduct, has been injured. Specifically, the
parties agree Plaintiff suffered a covered loss, yet Defendant Insurer insists that Plaintiff’s damages are significantly less than what Plaintiff’s contractors have quoted for all necessary repairs.
50. Defendant Insurer knowingly and with the reckless disregard for the Plaintiff in the course of handling of this subject claim made false statements, misrepresented material facts and engaged in actions and/or omissions for the purpose of misleading Plaintiff as to the rights, duties and insurance benefits in the subject contract for insurance and Plaintiff having relied upon such fraudulent conduct, has been injured. Specifically, Defendant Insurer’s adjuster conducted an unreasonable investigation and refused to acknowledge the extent or amount of damage as presented by Plaintiff or his contractors. Instead, Defendant Insurer insisted that Plaintiff’s damages are significantly less than what Plaintiff’s contractors have quoted for all necessary repairs.
These allegations do not come close to satisfying Rule 9(b)’s pleading requirements. The purpose of Rule 9(b)’s particularity requirement is to alert defendants to the precise misconduct with which they are charged and protect defendants against spurious charges of immoral and fraudulent behavior. Although Rule 9(b) demands specificity as to the exact misrepresentations at issue, the First Amended Complaint fails to inform the Court as to what the
misrepresentations were, when they occurred, who made them, or how General Star allegedly distorted material facts. After reading the above-referenced paragraphs, all the Court is able to discern is that there appears to be a dispute over the scope of insurance coverage available to Smiley. No matter how hard the Court tries, it is unable to ascertain the substance of any alleged false statements made by General Star’s employees or representatives.
In claiming that the operative complaint passes Rule 9(b) scrutiny, Smiley points to allegations that General Star “conducted an unreasonable investigation,” “refused to acknowledge the extent or amount of damage as presented by Plaintiff or his contractors,” and “insisted that Plaintiff’s damages are significantly less than what Plaintiff’s contractors have quoted.” These statements are wholly insufficient to meet the stringent requirements of Rule 9(b), as they do not describe any misrepresentation of fact.
In sum, the vague and generalized allegations of fraud contained in the First Amended Complaint fall well short of Rule 9(b)’s pleading requirements. By failing to identify “the particulars of time, place, and contents of the false representations, as well as the identity of the person making the
misrepresentation and what he obtained thereby,” the First Amended Complaint’s
fraud claim fails to reach first base safely.
The fraud claim was dismissed.