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Henry Carlson Co. v. Arch Insurance Co.

United States District Court, D. South Dakota

August 5, 2014

HENRY CARLSON COMPANY, a South Dakota corporation, Plaintiff,
v.
ARCH INSURANCE COMPANY, a Missouri corporation; INNOVATIVE RISK MANAGEMENT, a Texas corporation; and GALLAGHER BASSETT SERVICES, INC., a Delaware corporation, Defendants.

ORDER

KAREN E. SCHREIER, District Judge.

Plaintiff, Henry Carlson Company, brought suit against defendants, Arch Insurance Company, Innovative Risk Management, and Gallagher Bassett Services, Inc., alleging claims for breach of contract, negligence/insurance malpractice, first party bad faith, unfair trade practices, and fiduciary duty. Defendants Arch Insurance and Gallagher Bassett move to dismiss HCC's claim for first party bad faith or, in the alternative, move for a more definite statement of the claim. Defendants Arch Insurance and Gallagher Bassett also move for a more definite statement with respect to the other claims asserted by HCC. HCC resists the motion. For the following reasons, defendants' motion is granted in part and denied in part.

BACKGROUND

The facts, according to the First Amended Complaint, [1] are as follows:

HCC and its subsidiaries contracted with Arch Insurance to provide various business coverages, including workers' compensation and general liability. Arch Insurance exercised some of the claims handling functions and delegated others to Gallagher Bassett and Innovative Risk Management. Claims were routinely mishandled due to the action and/or policies of Arch Insurance, Gallagher Bassett, and/or Innovative Risk Management.

Specifically, Arch Insurance failed to properly handle or investigate claims made under the workers' compensation policy and/or general liability policy issued to HCC. Also, Arch Insurance, Gallagher Bassett, and Innovative Risk Management, jointly or separately, made, issued, or circulated untrue statements misrepresenting the terms of the policies Arch Insurance issued to HCC. One or more of the defendants also failed to fully disclose information and details pertinent to the parties' business relationships.

DISCUSSION

I. Bad Faith

Defendants move to dismiss HCC's claim for bad faith for failure to state a claim upon which relief can be granted. To decide a motion to dismiss under Rule 12(b)(6), the court may consider the complaint, some materials that are part of the public record, and materials embraced by the complaint. Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999). To survive a motion to dismiss, the complaint must contain "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The factual content in the complaint must "allo[w] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Braden v. Wal-Mart Stores, 588 F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).

In its First Amended Complaint, HCC alleges that Arch Insurance failed to zproperly handle or investigate claims made under the workers' compensation policy and/or general liability policy issued to HCC, that Arch Insurance, Gallagher Bassett, and Innovative Risk Management, jointly or separately, made, issued, or circulated untrue statements misrepresenting the terms of the policies Arch Insurance issued to HCC, and that one or more of the defendants failed to fully disclose information and details pertinent to the parties' business relationships.

HCC's claim for bad faith is a first-party bad faith claim. "First-party bad faith is an intentional tort and typically occurs when an insurance company consciously engages in wrongdoing during its processing or paying of policy benefits to its insured." Bertelsen v. Allstate Ins. Co., 833 N.W.2d 545, 561 (S.D. 2013).[2] Defendants argue that HCC's First Amended Complaint fails to state a claim for three reasons: it does not identify an existing insurance contract; it does not allege that a claim was unreasonably denied; and it does not allege what duty was breached.

First, although HCC does not identify a specific contract, HCC does allege that it contracted with Arch Insurance in such a manner that Arch Insurance provided a workers' compensation policy and/or a general liability policy to HCC. The reasonable inference can thus be made that there exists an insurance contract between HCC and Arch Insurance that can plausibly form the basis for HCC's bad faith claim.

Second, under South Dakota law, "[f]or proof of bad faith, there must be an absence of a reasonable basis for denial of policy benefits or failure to comply with a duty under the insurance contract and the knowledge or reckless disregard of the lack of a reasonable basis for denial[.]" Id. (emphasis added). "In the first-party context, there exists a contractual relationship, whereby the insurer has accepted a premium from its insured to provide coverage. Because of the nature of this relationship, [the South Dakota Supreme Court] recognized... that bad faith can extend to situations beyond mere denial of policy benefits." Dak., Minn. & E. R.R. Corp. v. Acuity, 711 N.W.2d 623, 629 (S.D. 2009) (internal citations and quotations omitted). For example, "[b]ad faith conduct may include the failure to conduct a reasonable investigation concerning the claim." Id. at 629. Based on the foregoing, HCC's assertions that Arch Insurance failed to properly handle or investigate claims made under the workers' compensation policy and/or general liability policy issued to HCC, that Arch Insurance, Gallagher Bassett, and Innovative Risk Management, jointly or separately, made, issued, or circulated untrue statements misrepresenting the terms of the policies Arch Insurance issued to HCC, and that one or more of the defendants failed to fully disclose information and details pertinent to the parties' business relationships, is enough to state a plausible claim for bad faith against Arch Insurance even though there are no allegations that a claim was unreasonably denied.

And third, the court is unaware of what defendants mean-or what they expect-when they claim that HCC did not allege what duty was breached. "Every insurance contract includes the duty of good faith and fair dealing.... The breach of that duty is called bad faith." S.D. Pattern Jury Instruction 30-20-10. It is straightforward that by asserting a bad faith claim, HCC is alleging that the duty of good faith and fair dealing was breached. Indeed, HCC explicitly ...


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