Opinion
Civil Action No. 00-0570 Section K(4)
June 7, 2000
ORDER AND REASONS
Before the court is a Motion to Dismiss pursuant to FRCP Rule 12(b)(6) filed by defendant, Reassure America Life Insurance Company ("Reassure"). The court heard oral argument on the motion on March 24, 2000. After a review of the memoranda, the record, and the relevant law, the court finds that the motion should be granted in part and denied in part.
I. Factual Background
In 1997, Carla LeMarie ("LeMarie") was employed as a microbiologist with the Veteran's Administration Hospital ("the VA") in New Orleans, earning approximately $44,000 per year. As a benefit of her employment, plaintiff was entitled to receive $17,000 per year through a salary continuation program in the event she became disabled. LeMarie was aware that her mother had died two years earlier of Huntington's Chorea ("Huntington's"). Huntington's is a fatal, genetic disorder of the central nervous system, which affects people between the ages of thirty-five and forty. LeMarie was also aware that she had a fifty-fifty chance of inheriting the fatal gene. To supplement her disability income, LeMarie applied for a disability insurance policy from Reassure's predecessor in interest, Business Men's Assurance Company of America ("BMA").
LeMarie disclosed the fact that her mother had suffered from Huntington's to BMA. When plaintiff applied for the policy, she was within the age range for a diagnosis of Huntington's. On the policy application, LeMarie requested disability benefits of $600 per month and social disability rider benefits of $1000 per month. As LeMarie was a single parent with a good chance of becoming disabled, her motive in purchasing additional insurance was to guarantee her continuing ability to provide for her family if she became disabled.
The policy actually issued to plaintiff provided "base" disability benefits in the amount of $600 per month and a social disability rider ("SDR") of $1000 per month. However, the policy provides that the SDR was to be reduced by any amount of legislative disability benefits received. When LeMarie became disabled with Huntington's in 1999, Reassure refused to pay the SDR because it did not exceed the disability benefits paid by the VA. LeMarie filed this action, alleging that defendant misinterpreted the policy and should be paying the SDR.
Alternatively, if the SDR is not payable under the terms of the policy, LeMarie alleges several non-contractual causes of action. Defendant contends that the following claims should be dismissed pursuant to FRCP Rule 12(b)(6): 1) detrimental reliance/equitable estoppel, 2) negligent or intentional misrepresentation, 3) non-compliance with La.R.S. 22:212, 4) violation of LUTPA, 5) abuse of rights, 6) penalties under La.R.S. 22:1220, and 7) otherwise at fault. The court will address each of these arguments in turn.
II. Standard for Motion to Dismiss
Under Rule 12(b)(6), a defendant may move to dismiss a case where the plaintiff has failed to state a claim upon which relief can be granted. In reviewing a 12(b)(6) motion to dismiss, the court must accept the plaintiffs factual allegations as true and construe them in favor of the non-moving party. Blackburn v. City of Marshal, 42 F.3d 925, 931 (5th Cir. 1995). A 12(b)(6) dismissal will not be granted unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Id., (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1987)). The court is not required to "conjure up unpled allegations" to save a complaint. Systems Contractors Corporation v. Orleans Parish School Board, et al., 1996 WL 547414, (E.D.La. 1996) (citing Gooley v. Mobil Oil Corp., 851 F.2d 513, 514 (1st Cir. 1988)).
III. Legal Analysis
A. Detrimental Reliance/Equitable Estoppel
Plaintiff alleges that she relied to her detriment on her application, in which she requested $600 base and $1000 SDR. The application stated that she was to receive benefits from the VA in the amount of$17,000; therefore, plaintiff maintains that she reasonably believed the policy she received provided for an SDR to be paid in addition to the VA benefits. In essence, plaintiff argues that the policy provided coverage in a situation which would only arise if she terminated her employment with the VA. Her reliance was detrimental because, while paying the premiums for the SDR, she did not set aside additional funds in the event of her disability.
In support of its Motion to Dismiss, defendant argues that plaintiff did not rely on anything more than the policy itself and her own interpretation of it, based on the representations she made in her application.
In opposition, plaintiff argues that the doctrine of equitable estoppel applies when the policy provides illusory coverage which will realistically never be triggered. Defendant was aware that LeMarie was to receive $17,000 per year from the VA, and was also aware of the coverage which she thought she was purchasing (through her application). Plaintiff cites a Louisiana Third Circuit case for the proposition that an insurer may be equitably estopped from denying coverage when "by his actions, or by his silence when he ought to speak, the insurance company has allowed the insured to believe that coverage exists, inducing detrimental reliance." Farmers-Merchants Bank and Trust v. St. Katharine's Insurance Co., 693 So.2d 876, (La.App. 3d Cir. 1997), writ denied, 703 SO.2d 25 (La. 1997).
The question before the court is whether the insurance company which issues a policy has a duty to inform an applicant of the differences between the coverage applied for and the terms of the policy actually issued. For purposes of a 12(b)(6) motion, the court accepts as true plaintiffs allegation that defendant was aware of her coverage needs, based on the application. Therefore, the court must decide whether the insurer with knowledge of an applicant's specific needs has a affirmative duty to correct misunderstandings about the policy.
Plaintiff cites a case from this district in which the court held a broker liable for failure to point out gaps in coverage between primary and excess policy, rejecting the argument that the plaintiff could have read the policy and discovered gaps for himself. In re American Cyanamid, 1991 WL 197208 (E.D.La.). While the case dealt with a broker's liability, the trial court did not specifically reject the defendant's argument that liability should rest with the insurance company, rather than the broker.
In other cases cited by plaintiff, insurance companies were held responsible for the agent's knowledge of an applicant's needs and issuing a policy which did not correspond with those needs. See Chandler v. Jones, 532 So.2d 402 (La.App. 3d Cir 1988); Cuisimano v. St. Paul Fire Marine Ins. Co., 405 So.2d 1382 (La.App. 1st cir. 1981); Hebert v. Breaux, 285 So.2d 829 (La.App. 1st Cir. 1973). Defendant attempts to distinguish these cases by pointing out that each involves the agent's error or omission, rather than the insurance company's. In this case, plaintiff has not alleged that the agent possessed any information beyond that contained in her application. Furthermore, none of the facts before the court would indicate whether the defendant may be liable under a theory of respondeat superior.
Rather, LeMarie has alleged that the insurance company itself had actual knowledge of the plaintiffs needs, as they were apparent on the face of her application. Unlike the cases cited by plaintiff, here, it is unnecessary to impute the agent's knowledge to the defendant. Under Louisiana law, an insurer may be liable for a policy erroneously issued, when should have known of the policyholder's desired coverage. See Hebert, 285 So.2d at 831 ( citing Maggio v. State Farm Mutual Automobile Ins. Co., 123 So.2d 901 (La.App. 1 Cir. 1960); Richard v. United States Fidelity Guaranty Co., 247 La. 943, 175 So.2d 277 (1965); Urania Lumber Co. v. Insurance Co. of North America, 177 So.2d 640 (La.App. 3 Cir. 1965)). The principle is the same if the insurer has actual knowledge, and that is what plaintiff has alleged. Therefore, for purposes of a 12 (b)(6) motion, plaintiffs claims of detrimental reliance and equitable estoppel will not be dismissed.
B. Negligent or Intentional Misrepresentation
Plaintiff alleges that defendant is responsible for either negligently or intentionally representing that coverage existed. Defendant argues that this cause of action should be dismissed because plaintiff does not allege that defendant affirmatively misrepresented anything.
The duty/risk analysis is the appropriate standard for determining legal responsibility for negligent representation. In a duty/risk analysis, the following determinations must be made: 1) was the conduct in question a cause-in-fact of the harm that resulted; 2) was there a duty owed to the plaintiff by the defendant to protect him from this type of harm, arising in this manner; and 3) did the defendant violate the duty owed? See: Hill v. Lundin Associates, Inc., 256 So.2d 620 (La. 1972). The issue of whether a duty is owed is a question of law. Harris v. Pizza Hut of Louisiana, Inc., 455 So.2d 1364, 1371 (La. 1984).
As in the case of detrimental reliance and equitable estoppel, the crucial question is whether an insurance company owes a duty to speak when it has knowledge of an applicant's misunderstanding. As explained above, Louisiana courts have imposed such a duty in the context of detrimental reliance.
The same duty has been found in the context of tort. See, e.g., Beal v. Lomas and Nettleton Co., 410 So.2d 318 (La.App. 4th Cir. 1982). In Beal, the plaintiffs were primarily interested in accidental death benefits and relied on the insurer's representation that the benefits would be continued under the new policy. When the insurer failed to inform plaintiffs of the deletion of the accidental death benefits, the court held the insurance company for negligent misrepresentation because it had a duty to convey correct information.
Likewise, the Fourth Circuit Court of Appeal found an insurer liable for negligent misrepresentation when it denied coverage for a tonsillectomy. Hilliard v. Louisiana Health Service and Indemnity Company, 411 So.2d 1116 (4th Cir. 1982). In Hilliard, the plaintiff was told by the insurer's employee over the phone that the company would pay for a tonsillectomy. Although the employee did not make any inquiry into the effective date of plaintiffs policy, the insurer denied coverage for a preexisting history of tonsillitis. The court of appeal found that the insurance company had a duty to inquire into the policy specifics before making a broad statement about coverage. The insurance company was liable for its failure to adequately describe to the plaintiff the coverage afforded by its policy. Id. at 1120.
In this case, the plaintiff alleges that the policy she was issued was significantly different than the one she had requested. Under Louisiana law, an insurer with knowledge of the applicant's needs has a duty to correct any misunderstanding. Therefore, accepting LeMarie's allegations as true, the court finds that she has stated a claim for negligent or intentional misrepresentation.
C. Noncompliance With La.R.S. 22:212
Defendant contends that plaintiffs claims pursuant to La.R.S. 22:212 should be dismissed as § 212 is inapplicable to the facts alleged by plaintiff. Plaintiff concedes this point. Accordingly, the court will dismiss plaintiffs § 212 claims.
D. LUTPA Claim
Plaintiff claims that defendant's actions violated Louisiana's Unfair Trade Practices Act ("LUTPA"). Defendant contends that LUTPA, by its own terms, is inapplicable in insurance cases.
The LUTPA states that its provisions do not apply to "[a]ctions or transactions subject to the jurisdiction of . . . the insurance commissioner." La.R.S. 51:1406(1). Plaintiff cites Lamarque v. Massachusetts Indemnity Life, 794 F.2d 197 (5th Cir. 1986) in support of her LUTPA claim. In Lamarque, the Fifth Circuit concluded that the Louisiana Supreme Court would allow a private cause of action under LUTPA against an insurance company.
Nonetheless, the majority of state and federal courts deciding the same issue since the Lamarque opinion, have declined to apply LUTPA in the insurance context. See Alarcon v. Aetna Casualty and Surety Company, 538 So.2d 696 (La.App. 3d Cir. 1989) (no private cause of action against insurance companies under LUTPA); Comeaux v. Pennsylvania General Insurance Company, 490 So.2d 1191, 1193 (La.App. 3d Cir. 1986) (same); West v. Fireman's Fund Insurance Company, 683 F. Supp. 156 (M.D.La. 1988) (explicitly recognizing the Fifth Circuit opinion in Lamarque and rejecting it) ( Travelers Indemnity Company v. Powell Ins. Co. 1996 WL 578030 (E.D.La.).
These courts have recognized that the insurance commissioner is charged with administering the provisions of the insurance code. La.R.S. 22:2. The Insurance Code contains specific regulations dealing with deceptive and unfair trade practices of insurance companies. La.R.S. 22:1211, et seq. The court finds this reasoning sound and persuasive. Therefore, LeMarie's LUTPA claims should be dismissed.
E. Abuse of Rights
Defendant contends that the facts alleged by plaintiff do not amount to an abuse of right case. In support of its motion, defendant argues that under Louisiana law, insurance companies have generally been held liable for abuse of rights when the policy has been modified or terminated. In this case, plaintiff has not alleged that the policy was terminated or modified. Rather, the plaintiff is alleging that the insurer abused its right by applying the terms of the policy, which was purchased before the plaintiff contracted the disease.
The abuse of rights doctrine applies 1) if a party seeking to enforce contract rights has no legitimate interest in the contract right he seeks to enforce; 2) if the exercise was primarily motivated by the desire to cause harm, 3) if exercise of the right is against moral rules, good faith or elementary fairness, or 4) if the exercise of the right was for a purpose other than that for which it was originally granted. See Oliver v. Central Bank, 658 So.2d 1316, 1321 (La.App. 2d Cir. 1995). The doctrine "has been applied sparingly in Louisiana." Clark v. Gibbons Coatings and Resins, 666 F. Supp. 868, 871 (E.D.La. 1987). Furthermore, Louisiana courts have construed broadly the legitimate interests of parties seeking to enforce a contract right. Walther v. National Tea Co., 848 F.2d 518, 519 (5th Cir. 1988) (Employer had legitimate interest in avoiding "the liability inherent in the vesting of . . . pensions [rights]," thus no abuse of rights when the employer fired two employees of nearly ten years of 24 hours' notice); Massachusetts Mut. Life Ins. Co. v. Nails, 549 So.2d 826 (La. 1989) (Insurance company had legitimate interest in providing group insurance only to members of the group; no abuse of rights when company exercised contractual right and terminated the group health coverage of a person who had been so seriously injured that he became a quadriplegic and lost his job); Acme Refrigeration of Baton Rouge, Inc. v. Whirlpool Corp., 747 F.2d 292 (5th Cir. 1985) (no abuse of rights under Louisiana law where distributorship agreement was not renewed because seller had a legitimate business interest in refusing to continue doing business with a customer with which its relationship had changed).
In this case, the contract right at issue was defendant's right to deny coverage under the terms of the contract as written. The question before the court is whether the defendant had a legitimate interest in denying coverage or whether the exercise of the right was done in bad faith. Defendant contends that plaintiff has not alleged that coverage was denied in an effort to cause harm, and plaintiff does not dispute this point. In fact, plaintiff does not specifically address defendant's arguments on the abuse of rights issue. Upon examination of the complaint in this matter, the court is unable to find any suggestion that defendant's denial of coverage was done in bad faith, was meant to cause harm, or was done for any purpose other than ordinary business purposes. Accordingly, the doctrine is inapplicable in this case, and plaintiffs abuse of rights claim should be dismissed.
E. Penalties Under 22:1220
Plaintiff conceded at oral argument that the penalty provisions of La.R.S. 22:1220 do not apply to the health and accident policy at issue in this case. Thus, her claims pursuant to 22:1220 should be dismissed.
F. Otherwise at Fault
Defendant seeks dismissal of plaintiffs vague "otherwise at fault" allegation. The plaintiff does not oppose dismissal, and the court agrees that it is vague and should be dismissed.
VI. Conclusion
For the reasons explained above,
IT IS ORDERED that defendant's motion with respect to the negligent and intentional misrepresentation claims and the detrimental reliance/equitable estoppel claims, is hereby DENIED.
IT IS FURTHER ORDERED that defendant's motion, with respect to the abuse of right claim, the claims made pursuant to La.R.S. 22:1220 and 212, and the "otherwise at fault" claim is hereby GRANTED.