Opinion
Civil Action No. AW-00-2581.
December 19, 2000.
MEMORANDUM OPINION
Currently pending before the Court is Defendant's Motion to Dismiss Plaintiff's Second Amended Complaint [20-1]. The motion has been fully briefed by all parties. No hearing is deemed necessary. See Local Rule 105.6. Upon consideration of the arguments made in support of, and opposition to, the defendant's motion, the Court makes the following determinations.
I. FACTUAL BACKGROUND
McCarthy, Wilson Ethridge, Plaintiff, is a partnership engaged in the practice of law. In November 1990, Plaintiff applied for Business Buy-Out Expense Disability Insurance sold by Provident Life and Accident Insurance Company, Defendant. The policy became effective on February 1, 1991. As a partner of McCarthy, Wilson Ethridge, Paul H. Ethridge was a proposed insured under the policy. In March 1999, Mr. Ethridge began to suffer from symptoms associated with coronary artery disease which required surgery and continued medical attention. According to Plaintiff, the disease totally disabled Mr. Ethridge for a year. Given Mr. Ethridge's condition, Plaintiff entered into a Permanent Disability Buy-Out Agreement that called for the remaining equity partners to purchase Mr. Ethridge's equity interest in the partnership. Thereafter, Plaintiff filed a claim for Business-Out Expense Disability benefits, including Legal/Accounting Fee benefits, under the policy. Defendant denied the claim. Plaintiff filed suit claiming breach of contract and fraud.
II. DISCUSSION
A. Standard of Review
It is well established that a court should not dismiss a complaint under Rule 12(b)(6), "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The function of a motion to dismiss for failure to state a claim is to test the legal sufficiency of the complaint, and not the facts that support it. See Neitzeke v. Williams, 490 U.S. 319, 326-27 (1989). In determining whether to dismiss the complaint, this Court must view the well-pleaded material allegations in a light most favorable to the plaintiff, with the alleged facts accepted as true. See Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th. Cir. 1999); Chisolm v. TranSouth Financial Corp., 95 F.3d 331, 334 (4th Cir. 1996).
B. Request for Attorneys' Fees
Under Count I for breach of contract, the Second Amended Complaint requests relief of two million dollars, plus interest, costs, and reasonable attorneys' fees. Plaintiff concedes that Maryland follows the American Rule where the "`costs and expenses of litigation, other than the usual and ordinary Court costs, are not recoverable in an action for damages.'" Collier v. MD-Individual Practice, 327 Md. 1, 11, 607 A.2d 537 (1992). Instead, Plaintiff argues that the request for attorneys' fees arises out of the Legal/Accounting Fee Benefits of the Business Buy-Out Policy. Defendant agrees that the policy includes a provision for Legal/Accounting Fees and that recovery under said provision would be incorporated into a judgment awarding benefits. Therefore, to the extent that Plaintiff seeks attorneys' fees in addition to an award of benefits pursuant to the Legal/Accounting Fees provision of the policy, the Court grants Defendant's motion to dismiss.
C. Count II — Fraud
Next, Defendant contends that Plaintiff has not satisfied the pleading requirements of Fed.R.Civ.P. 9(b). Defendant emphasizes that Plaintiff has insufficiently pled the content of the alleged misrepresentations. Fed.R.Civ.P. 9(b) provides that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." "Rule 9(b) must be read in conjunction with Rule 8 which contains the provisions creating the `notice' pleading which is the hallmark of the federal rules. Rule 9(b) requires more than mere notice in cases of fraud; nevertheless, it is not to be construed and applied in a vacuum devoid of Rule 8's existence." Oliver v. Bostetter, 426 F. Supp. 1082, 1089 (D.Md. 1977). "[T]he `circumstances' required to be pled with particularity under Rule 9(b) are `the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.'" Harrison, 176 F.3d at 784 (quoting 5 Charles Alan Wright and Arthur R. Miller, Federal Practice and Procedure: Civil § 1297, at 590 (2d ed. 1990)). "The requirement of `particularity' then does not require the elucidation of every detail of the alleged fraud, but does require more than a bare assertion that such a cause of action exists." Copiers Typewriters Calculators, Inc. v. Toshiba Corp., 576 F. Supp. 312, 327 (D.Md. 1983). "A court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which [it] will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts." Harrison, 176 F.3d at 784.
In support of its fraud claim, Plaintiff alleges that, in its Washington, D.C. office, the insurance broker, George E. Reese CLU, Ltd., contracted with Plaintiff to obtain the Business Buy-Out Expense Disability Insurance policy in dispute. Plaintiff alleges that, in 1991, Robert Henrich and Stan Nebinski, managers of the insurance broker at various times, represented that they were in the business of providing Business Buy-Out Expense Disability Insurance. Plaintiff alleges that, through each renewal and update of the Policy, the Defendant represented to protect the business interests of professionals, such as the partners of McCarthy, Wilson, Ethridge. The complaint alleges that Defendant's customer service representatives made representations about the applicable insurance coverage that would be paid in the event of disability. Plaintiff maintains that the representations were false and fraudulent because the Defendant had already made the business decision to deny legitimate claims in order to improperly delay and forestall payment. Plaintiff alleges that the representations were made with the intent to defraud insureds as to the scope of coverage promised under the policy. The complaint states that Plaintiff justifiably relied on the misrepresentations in paying premiums and not obtaining other insurance that would have met its needs. Given the applicable standard of review, the Court takes Plaintiff's allegations as true and accepts that (1), at the time of Plaintiff's application for insurance, Robert Henrich and Stan Nebinski, the managers of the insurance broker that procured the policy, represented that they were in the business of providing Business Buy-Out Expense Disability Insurance; (2) that the renewals of the policy represented to protect the business interests of professionals, such as the partners of the Plaintiff; and (3) that correspondence from unidentified customer service representatives of Defendant represented that protection would be provided by Provident under the Business Buy-Out Disability Insurance policy. See Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 791 (4th. Cir. 1999).
In essence, Plaintiff's fraud claim apparently alleges that Provident misrepresented its intent to comply with the terms of the contract (i.e, paying claims covered by the policy) in order to procure its acceptance of the insurance policy and payment of the premiums thereunder. Maryland law recognizes that a promissory representation made with an existing intention not to perform may constitute actionable fraud. See Bocchini v. Gorn Management Co., 515 A.2d 1179, 1189 (Md.App. 1986); Colandrea v. Colandrea, 401 A.2d 480, 486 (Md.App. 1979). Still, conclusory allegations of bad faith at the formation of the contract based upon one parties' performance, or lack thereof, does not meet the special pleading requirements of Rule 9(b). See Conan Properties, Inc. v. Mattel, Inc., 601 F. Supp. 1179 (D.C.N Y 1984) (stating that conclusory allegation that defendant must have acted in bad faith when it entered agreement was not sufficiently particular.) Specific omissions and misrepresentations must be alleged. See Oliver v. Bostetter, 426 F. Supp. 1082, 1089 (D.Md. 1977). As to the allegations that each annual renewal and "correspondence" from unnamed customer service representatives misrepresented the partnership's coverage under the policy, the complaint fails to allege or specify the statements or provisions within these documents that support the fraud claim. See PepsiCo, Inc. v. Continental Casualty Co., 640 F. Supp. 656, 664 (S.D.N.Y. 1986) (finding fraud claim of insured alleging that liability insurer never intended to honor insurance contract from the outset failed to satisfy pleading standards of Rule 9(b)). Furthermore, although not necessary, these documents are not on record for the Court to review whether that fraudulent character of the statements contained therein would be self-evident. See Oliver, 426 F. Supp. at 1089. Additionally, the complaint admittedly states that the identity of the customer service representatives that allegedly corresponded with Plaintiff remain unknown. The pleading requirements of Rule 9(b) require that the source of alleged fraudulent statements be identified. See U.S. v. EER Systems Corp., 950 F. Supp. 130, 132 (D.Md. 1996) (finding plaintiff failed to state fraud claims with particularity where complaint failed to name person who made representations at issue and to specifically state what he or she did). The general reference to customer service representatives is insufficient to make the Defendant aware of the particular circumstances for which it will have to prepare a defense at trial. Similarly, the fraud claim must specify the date of the alleged fraudulent acts. Here, Plaintiff alleges that the fraudulent statements as to the extent of coverage occurred every year beginning in 1991. A general allegation of fraudulent statements occurring over the last nine years without more detail as to the "when" of the fraud fails to meet the specificity requirements of Rule 9(b). See Ackerman v. Northwestern Mut. Life Ins. Co., 172 F.3d 467, 470-71 (7th Cir. 1999) (finding insureds did not plead fraud claims against life insurer with sufficient particularity, where the complaint failed to specify dates on which alleged fraudulent representations were made or to identify the specific fraudulent statements by insurer or its officers and the content of those statements).
Although the alleged representations of the insurance broker identify Robert Henrich and Stan Nebinski as the source of the statements and specify the contents as that they were in the business of providing Business Buy-Out Expense Disability Insurance, the claim fails to state a claim upon which relief can be granted. "As a general rule where one employs another to procure insurance such person is the agent of the insured. . . . [even] where the insurance is effected through a broker and even though the broker solicited the insured." Reserve Ins. Co. v. Duckett, 240 Md. 591, 601, 214 A.2d 754, 760 (1965). Beyond assuming the fact of agency, Plaintiff has not alleged any facts that would overcome the presumption that the insurance broker was the partnership's agent for the purposes of procuring the insurance policy, not the Defendant's. "When a party asserts a claim that is dependent upon an agency relationship created by inference, that party has the burden of proving the existence of the principal-agent relationship, including its nature and extent." Green v. H R Block, 355 Md. 488, 504, 735 A.2d 1039 (1999). In the absence of an agency relationship between George E. Reese CLU, Ltd. and Provident for the purpose of procuring of the policy, the alleged misrepresentations of Robert Henrich and Stan Nebinski cannot support a fraud claim against the Defendant. Therefore, the Court will grant Defendant's Motion to Dismiss as to Count II since Plaintiff's allegations of fraud either do not meet the specificity requirements of Rule 9(b) or fail to state a legally cognizable claim against Provident.
The elements of a fraudulent misrepresentation claim under Maryland law are the traditional ones: (a) a false representation, (b) made with knowledge of its falsity or reckless indifference to its truth, (c) for the purpose of defrauding another, who (d) acted upon it in reasonable reliance upon its truth, and (e) suffered damage directly resulting from the misrepresentation. Martens Chevrolet, Inc. v. Seney, 439 A.2d 534, 537 (Md. 1982).
III. CONCLUSION
For the reasons stated above, the Court will grant Defendant's Motion to Dismiss under Count I to the extent that Plaintiff seeks attorneys' fees extraneous to an award of benefits under the policy at issue. The Court also grants Defendant's Motion as to Plaintiff's fraud claims in Count II. However, the Court grants Plaintiff leave to amend the complaint in order to identify the content, time, and source of the alleged fraudulent statements made by the Defendant or its agents. An Order consistent with this Opinion will follow.
ORDER
For the reasons stated in the accompanying Memorandum Opinion dated December _____, 2000, IT IS this ___ day of December, 2000, by the United States District Court for the District of Maryland, hereby ORDERED:
1. That Defendant's Motion to Dismiss [20-1] BE, and the same hereby IS, GRANTED to the extent that Plaintiff seeks attorneys' fees extraneous to an award of benefits under the policy at issue under Count I and as to Plaintiff's fraud claims in Count II;
2. That Plaintiff IS GRANTED leave to amend Count II of the complaint within days of the date of this Order and that failure to amend within the specified period will result in the dismissal of the fraud claims; and
3. That the Clerk of the Court mail copies of this order to all counsel of record.