Opinion
Civil No. 07-1337-HA.
August 12, 2008
ORDER
Plaintiffs' Amended Complaint against defendant now asserts six claims: Declaratory Relief (Count I); Breaches of Contract (Count II); Breaches of Implied Duty of Good Faith and Dealing (Count III); Bad Faith (Count IV); Fraud in the Inducement (Count V); and Fraudulent Misrepresentation (Count VI). At issue presently is defendant's motion to dismiss Counts IV, V, and VI, referred to as plaintiffs' "tort claims," for failure to state claims upon which relief can be granted. Oral argument on this motion is deemed unnecessary. For the following reasons, defendant's motion [12] is denied.
ANALYSIS
Generally, dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is denied "unless it appears beyond doubt that a plaintiff can prove no set of facts in support of his [or her] claim" that would entitle the plaintiff to relief. SmileCare Dental Group v. Delta Dental Plan of Calif., Inc., 88 F.3d 780, 783 (9th Cir. 1996) (citation omitted). For the purposes of resolving a motion to dismiss, the Complaint must be construed liberally in favor of the plaintiff, and the Complaint's allegations are accepted as true. McGary v. City of Portland, 386 F.3d 1259, 1261 (9th Cir. 2004) (citation omitted). Accordingly, a motion to dismiss for failure to state a claim may be granted only if, accepting all well-pled allegations in the Complaint as true and viewing them in a light most favorable to the plaintiff, the plaintiff is not entitled to relief. Id.
However, although "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations [to survive], a plaintiff's obligation to provide the grounds of his [or her] entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1959 (2007) (citations, internal quotation marks omitted). "Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true." Id.
Here, plaintiffs' tort claims assert bad faith, fraud in the inducement, and fraudulent misrepresentation. The gravamen of defendant's challenges to these three claims is that under Oregon law each of the claims requires a "special relationship" between the parties, and no such relationship exists. These challenges — and defendant's other arguments — fail to meet the standards for granting dismissal described above.
First, the plaintiffs in this action are five separate corporations with headquarters in four different states: Oregon, Utah, Idaho and Washington. There has been no choice of law determination establishing that defendant's reliance upon Oregon law in arguing for dismissal is appropriate. Advancing such specific state law arguments in support of a dispositive motion is, therefore, premature.
Moreover, plaintiffs refute defendant's "absence of special relationship" contentions sufficiently to withstand dismissal of their tort claims even if Oregon law controls, or even if special relationships are a prerequisite in each of the three claims. To the extent that defendant may be entitled to defeat plaintiffs' tort claims because of an absence of a special relationship between defendant and plaintiffs, that possible absence is factually disputed and cannot be the basis for a dismissal as a matter of law.
Taking plaintiffs' allegations as true, as this court must for purposes of resolving defendant's motion, plaintiffs purchased insurance coverage from defendant that is referred to as a "Managed Care Organization Liability Insurance Policy." The specific policy at issue was in effect from January 1, 2001 to January 1, 2002. Prior to this period defendant had sold similar insurance coverage to plaintiffs, and plaintiffs describe the 2001-2002 policy as a "renewal" of coverage in effect from 2000 to 2001. Am. Comp., Paras. 15-16.
Plaintiffs are defending three lawsuits — one pending in Washington, and two pending in Florida. Plaintiffs allege that defendant accepted coverage without reservation when plaintiffs were served with the first lawsuit, but denied coverage regarding the second and third lawsuits.
Consequently, plaintiffs sued defendant in 2004 to compel defendant's participation in defending the second and third suits. Plaintiffs allege that under a subsequent settlement agreement, defendant agreed to defend each of the three actions unconditionally and without reservation. Am. Comp., Paras. 26-27. The settlement agreement and the parties' relationship have since deteriorated.
Count IV in this case alleges bad faith and asserts that defendant negligently performed its duties, particularly regarding its defense obligations. Am. Comp., Paras. 49-53. Count V alleges that defendant fraudulently induced plaintiffs to purchase its policy and supplemental coverage. Am. Comp., Paras. 54-59. Count VI alleges that defendant negligently represented the scope of coverage it would provide. Am. Comp., Paras. 60-65.
Defendant correctly notes that under Oregon law a tort claim based on conduct that is also a breach of contract requires a party to allege two things: "`first, that the defendant's conduct violated some standard of care that is not part of the defendant's explicit or implied contractual obligations; and, second, that the independent standard of care stems from a particular special relationship between the parties.'" Thompson v. Federico, 324 F. Supp. 2d 1152, 1167 (D. Or. 2004) (quoting Strader v. Grange Mut. Ins. Co., 179 Or. App. 329, 333, 39 P.2d 903, 906 (2002)).
A "special relationship" exists between contracting parties when one party owes the other a duty of care implied from the law. Georgetown Realty, Inc. v. Home Ins. Co., 313 Or. 97, 110-11 110 n. 7, 831 P.2d 7, 14 n. 7 (1992). Examples include duties owed by lawyers, physicians, architects, engineers, and liability insurers. Id.
Absent a special relationship, a claim between an insured and the insurer is likely to arise out of the policy and therefore is likely to be contractual only. This includes allegations of negligent conduct occurring after the policy is issued. See Prudential Prop. Cas. Ins. Co. v. Lillard-Roberts, 2002 WL 31974401, at *3 (D. Or. Nov. 4, 2002) (holding that defendant's claim for fraud based on a misrepresentation by the insurance company's agent regarding the extent of coverage failed, because the extent of the defendant's coverage was defined by the insurance policy and no special relationship existed between the defendant and either the insurance company or its agent). However, an insurance agent's conduct prior to the issuance of a policy claim "does not rest on the parties' special relationship" but instead may turn on whether an agent fraudulently or negligently induced an entity to purchase inadequate insurance coverage. Id. at *3-4.
Therefore, addressing the last two challenged claims first, to the extent that plaintiffs' allegations under Counts V and VI pertain to defendant's conduct prior to the issuance of policy coverage, defendant's "special relationship" arguments are misplaced. To the extent that these claims might concern post-policy conduct, dismissal as a matter of law is precluded due to the absence of a choice of law determination and because there are material issues of fact raised regarding the proper scope and definition of the relationship existing between plaintiffs and defendant.
As noted above, Count VI of plaintiffs' Amended Complaint alleges Fraudulent Misrepresentation, and pertains to the degree to which defendant fulfilled or failed duties it owed to plaintiffs, particularly regarding its defense obligations. If, after a choice of law determination is made, it becomes clear that this claim requires a showing that a special relationship existed between plaintiffs and defendant, defendant's argument for dismissal as a matter of law would still nevertheless fail.
Plaintiffs contend that defendant agreed to defend them unconditionally and without reservation, and that by no later than 2004, defendant undertook to defend plaintiffs in each of the three lawsuits advancing against plaintiffs. Am. Comp., Para. 27. There are at least several issues of fact as to whether defendant was a party to a joint defense agreement and the extent to which defendant and its counsel exercised control over, privileged reports from plaintiffs.
Defendant acknowledges that a sufficiently special relationship can arise when a liability insurer agrees to defend and stand in the shoes of a client who has been sued. Dft.'s Mem. Supp. at 3 (quoting Georgetown, 313 Or. at 110-11, 831 P.2d at 14). Defendant insists that it never "had control over the defense sufficient to meet the `special relationship' hurdle." Dft.'s Mem. Supp. at 5.
Defendant asserts that plaintiffs have yet to relinquish control of the defense of the lawsuits, and that defendant had no control over settlement negotiations. Plaintiffs dispute this characterization of the parties' conduct.
Assuming without deciding formally that the "special relationship" hurdle applies to the analysis of whether to dismiss Count IV as a matter of law, this court concludes that the question of whether the degree of control exercised by defendant was "sufficient" for construing defendant as having stepped into plaintiffs' shoes is a pending factual determination. As such, the motion to dismiss Count IV must also be denied.
CONCLUSION
After accepting all well-pled allegations in the Complaint as true, and viewing them in a light most favorable to plaintiffs, this court is compelled to conclude that plaintiffs' allegations are sufficient to withstand defendant TIG's motion to dismiss plaintiff's tort claims, presented as Counts IV, V, and VI in plaintiffs' Amended Complaint. Accordingly, defendant's Motion to Dismiss [12] is denied.
IT IS SO ORDERED.