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Landon v. American Family Mutual Insurance Co.

United States District Court, D. South Dakota, Southern Division

December 15, 2017




         On April 25, 2017, plaintiffs, Stephen and Dianne Landon, filed a complaint alleging breach of contract, bad faith, punitive damages, and vexatious refusal to pay against defendant, American Family Mutual Insurance Company. Docket 1. American Family moves to dismiss Count II (bad faith) and Count III (punitive damages) of the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Docket 5. Plaintiffs oppose the motion. Docket 9. For the reasons that follow, the court denies American Family's motion to dismiss.


         The facts alleged in the complaint, accepted as true, are as follows: In June 2014, a hailstorm damaged plaintiffs' home and numerous other homes in their Sioux Falls, South Dakota, neighborhood. The hailstorm caused extensive damage to plaintiffs' shake shingle roof. At the time of the hailstorm, plaintiffs had in effect a homeowner's insurance policy with American Family that listed hail damage as a covered loss. After the hailstorm, plaintiffs timely filed a claim to American Family for the damage caused to their home.

         Sometime after the plaintiffs submitted their claim, an authorized agent of American Family inspected plaintiffs' home and determined that the roof, gutters, and downspouts were damaged by the hailstorm. Based on that inspection, American Family determined that $2, 810.75 was a reasonable amount to repair the damage. American Family had notice that the homes adjacent to plaintiffs' home as well as other homes in the neighborhood also suffered extensive hail damage. These homes, some of which were insured by American Family, were compensated for the full replacement value of the damage caused to the homes by the hailstorm.

         Plaintiffs repeatedly told American Family that $2, 810.75 was insufficient to fix the damage caused to their home by the hailstorm. Despite plaintiffs' numerous requests that American Family cover the full replacement value of the damage caused to their home, American Family continued to rely on its initial investigation when assessing the value of the damage to plaintiffs' home.


         A court may dismiss a complaint “for failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.' ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.

         The court determines plausibility by considering only the materials in the pleadings and exhibits attached to the complaint, drawing on experience and common sense, and viewing the plaintiff's claim as a whole. Whitney v. Guys, Inc., 700 F.3d 1118, 1128 (8th Cir. 2012). Inferences are construed in favor of the nonmoving party. Id. at 1129 (citing Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 595 (8th Cir. 2009)). A well-pleaded complaint should survive a motion to dismiss “even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.” Twombly, 550 U.S. at 556 (internal quotations omitted); accord Johnson v. City of Shelby, 135 S.Ct. 346, 346 (2014) (per curiam) (“Federal pleading rules call for ‘a short and plain statement of the claim showing that the pleader is entitled to relief, ' Fed.R.Civ.P. 8(a)(2); they do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted.”).

         A heightened pleading standard applies when a complaint alleges fraud or mistake. See Fed. R. Civ. P. 9(b). Under Federal Rule of Civil Procedure 9(b), a party alleging fraud or mistake “must state with particularity the circumstances constituting fraud or mistake.” Thus, to satisfy Rule 9(b), the party alleging fraud “must typically identify the ‘who, what, where, when, and how' of the alleged fraud.” BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007) (quoting United States ex rel. Costner v. URS Consultants, Inc., 317 F.3d 883, 888 (8th Cir. 2003)).

         As described by the Eighth Circuit Court of Appeals, the particularity requirement of Rule 9(b) serves three important purposes:

First, it deters the use of complaints as a pretext for fishing expeditions of unknown wrongs designed to compel in terrorem settlements. Second, it protects against damage to professional reputations resulting from allegations of moral turpitude. Third, it ensures that a defendant is given sufficient notice of the allegations against him to permit the preparation of an effective defense.

Streambend Props. II, LLC v. Ivy Tower Minneapolis, LLC, 781 F.3d 1003, 1010 (8th Cir. 2015) (quotation omitted). “Claims ‘grounded in fraud' must meet this heightened pleading requirement.” Id. (citations omitted). “The level of particularity required depends on . . . the nature of the case and the relationship between the parties.” BJC Health Sys., 478 F.3d at 917 (citing Payne v. United States, 247 F.2d 481, 486 (8th Cir. 1957)). “Rule 9(b) should be read ‘in harmony with the principles of notice pleading.' ” Id. (quoting Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 746 (8th Cir. 2002)).


         American Family presents two primary arguments in support of its motion to dismiss. American Family first argues that plaintiffs' claims for bad faith and punitive damages are subject to dismissal because they fail to meet the heightened pleading standard of Rule 9(b). American Family next argues that even if plaintiffs' claims for bad faith and punitive damages are not subject to a heightened pleading requirement, the claims are still subject to dismissal because they fail to satisfy the notice pleading requirement of Rule 8(a)(2). Because this case is before the court on diversity jurisdiction, the court will apply South Dakota's substantive law and federal procedural law to resolve American Family's motion to dismiss. ...

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