SNR Denton on Toughened Federal Pleading Rules Apply to Conclusory Allegations of Bad Faith: Luna v. Nationwide Property & Casualty Insurance Co.

SNR Denton on Toughened Federal Pleading Rules Apply to Conclusory Allegations of Bad Faith: Luna v. Nationwide Property & Casualty Insurance Co.

William Barker & Ronald Kent   By William T. Barker & Ronald D. Kent, Partners, SNR Denton

The Supreme Court has recently toughened federal pleading requirements, but those are usually thought of as impacting cases involving such subjects as securities fraud and antitrust, where the defendant has control of much relevant factual material.  But Luna v. Nationwide Property & Casualty Insurance Co. applied those requirements to dismiss bad faith allegations.  Plaintiffs should make such allegations more specific, and defendants should force them to do so.


Hurricane Flooded House

Luna arose out of a claim for damage caused by Hurricane Ike.  Luna claimed extensive damage throughout the house, including ceilings, walls, insulation, windows, screens, and flooring, as well as structural and exterior damage. He also claimed damage to his patio, fence, and shed. He filed a claim with Nationwide for food and contents loss, structural damage, roof damage, water damage and wind damage.  The adjuster, Rehders, whom Luna alleged was improperly trained, allegedly spent only 30 minutes inspecting the property, did not go inside, and did not go on the roof.  His report was allegedly devoid of pictures and provided payment only for one roof turbine and half a square of roofing (and similarly modest repairs to the shed).  Moreover, the estimate allegedly used prices not in accord with those in the area (especially in the wake of the hurricane) and included no allowance for overhead and profit.  (It did not specify what damage was sustained by the roof or what prices should have been used.)  Luna alleged a variety of extracontractual claims, all of which the court dismissed.

The court reasoned that:

Plaintiff's amended complaint is composed of vague, general conclusions without the kind of factual support that would state a plausible claim under Rules 8 and 12(b)(6), no less a fraud based claim under Rule 9(b). Not only does he fail to allege an actionable misrepresentation for his fraud claim, but he fails to provide sufficient facts to state claims for violations of the Texas Insurance Code. Examples of Plaintiff's vague allegations are such charges as Nationwide's failure to properly train Rehders, without identifying what it should have taught him but did not, failure to show with particularity how Rehders' investigation was unreasonable or "outcome-oriented," the absence of any example of an undervalued or denied claim, no indication of how and how much overhead and profit of which Plaintiff was allegedly deprived, vague and ambiguous assertions of unfair settlement practices, failure to specify what was unreasonable delay in payment....

* * * *

[As to the claim for common law bad faith,] Plaintiff ... does not provide any facts that show that Nationwide's liability was reasonably clear, that his claims were covered under particular provisions of the policy, what Nationwide knew at the time it denied his claims, any proposed settlement within the policy limits that Nationwide failed to effectuate, why and how Nationwide's payments were unreasonably delayed, or where its investigation was not reasonable.

The commentary suggests that

Even where pleading standards are less demanding that those applied in Luna, best practice calls for drafting a complaint that clearly shows the basis of the claim.  Showing that the claim is substantial may encourage a reevaluation and an increased payment or offer.  And counsel will need to specify the complaint's basis sooner or later.  Thinking that through and performing a preliminary factual investigation is an important part of evaluating whether to undertake a representation.

The commentary offers suggestions for constructing adequate bad faith pleadings.

William T. Barker is a partner in the Chicago office of SNR Denton, L.L.P., with a nationwide practice representing insurers in complex litigation, including matters relating to coverage, claims handling, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is the co-author of New Appleman Insurance Bad Faith Litigation. He is a member of the Editorial Board of the New Appleman on Insurance Law Library Edition and a Consulting Author of the New Appleman Insurance Law Practice Guide. He has published over 100 articles and speaks frequently on insurance and litigation subjects. He was a Contributing Editor and then Editor of Bad Faith Law Report until that publication merged with Insurance Litigation Reporter, where he is currently Senior Contributing Editor and Editorial Board Director. He has been described as the leading lawyer commentator on the connections between procedure and insurance. See Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 n.4 (1995). Mr. Barker is a member of the American Law Institute.

Ronald D. Kent heads the Litigation Department in SNR Denton's Los Angeles office. He is also Co-Chair of the Firm's National Insurance Litigation and Coverage Practice and is a member of the firm-wide Policy & Planning (Management) Committee. Since 2005, he has been named each year as a leading trial lawyer nationally and in California, based on peer and client evaluations, by Chambers USA: America's Leading Lawyers, the highly respected independent attorney rating organization. Mr. Kent has extensive experience representing major insurance companies on a wide variety of matters, including fraud and bad faith actions, class action and multiple plaintiff litigation, defense of toxic tort and other environmental claims, insurance coverage actions and general business disputes. Mr. Kent has tried matters in state and federal courts throughout California, and in other states, and has successfully handled in excess of 70 arbitrations to final resolution. In addition, he has briefed and argued numerous appellate matters in the California Supreme Court, nearly all California district courts of appeal and the Ninth Circuit Court of Appeals. Mr. Kent is the co-author of the second edition of New Appleman Insurance Bad Faith Litigation. subscribers can access the complete commentary, SNR Denton on Toughened Federal Pleading Rules Apply to Conclusory Allegations of Bad Faith: Luna v. Nationwide Property & Casualty Insurance Co.. Additional fees may be incurred. (approx. 7 pages)

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