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Progressive Specialty Insurance Co. v. Smith

United States District Court, S.D. Alabama, Southern Division

November 21, 2014



WILLIAM E. CASSADY, Magistrate Judge.

This cause is before the Magistrate Judge for issuance of a report and recommendation, pursuant to 28 U.S.C. § 636(b), on the complaint for declaratory judgment (Doc. 1), the respondents' answer and counterclaim (Doc. 14), Progressive Specialty Insurance Company's (hereinafter, "Progressive") motion to dismiss counterclaim (Doc. 18), the Smiths' response in opposition (Doc. 22), and the moving party's reply (Doc. 24). Upon consideration of the foregoing pleadings, the Magistrate Judge recommends that the Court DENY petitioner's motion to dismiss the respondents' counterclaim (Doc. 18).


As previously observed by the Court, "[t]he Smiths insured their RV with Progressive." (Doc. 29, at 1.) Indeed, Shelia Smith contacted Progressive on April 30, 2014, and reinstated the policy of insurance on the RV, bearing policy number 32817137-8, at 9:59 a.m., that lapsed on April 4, 2014. ( Compare Doc. 14, at 4-5 with Doc. 1, ¶ 6.) And, "[w]hile parked at a campground in Baldwin County, Alabama, rising river waters flooded the RV." (Doc. 29, at 1.) For its part, petitioner contends that torrential rains fell in Baldwin County on April 29-30, 2014, with no rain occurring on May 1, 2014 (Doc. 1, at ¶ 7), and it is Progressive's belief that "there was flooding in the area where the insured RV was located prior to" May 1, 2014 ( id. ). The Smiths contend that the damage sustained by their RV due to rising-river waters occurred on May 1, 2014 (Doc. 14, at 5) and that same day they made a claim under their Progressive policy for the total loss of their RV ( compare Doc. 29, at 1 with Doc. 1, at ¶ 7).

On May 13, 2014, Progressive notified Bobby Smith by letter that it had completed a "thorough investigation of th[e] claim" and though it attempted "to provide coverage[, ]" it "regret[ted] to inform [the insureds] that [their] claim [could not] be covered by Progressive Insurance." (Doc. 22, Exhibit 1, at 1; see also id. ("Our investigation determined that the loss occurred before the policy reinstated on April 30, 2014 at 9:59 am Eastern Time. This decision is based on, but not limited to, information provided by you, inspection of the property and the insuring agreements, per your policy contract, listed below.").) While an explicit denial of coverage appears clear from this language, on the next page of the letter the claims agent does not do a total about-face but does tergiversate by informing the Smiths that it was necessary for Progressive Insurance to "conditionally deny the claim[.]" ( Id. at 2; see also id. ("If you can provide us with any additional information or documentation that may alter our decision in any way, please do not hesitate to contact us at the telephone number provided below.").)

On June 3, 2014, Phil E. Miley, Esquire, penned a letter to the above-referenced claims agent, Jake Degroot, and therein requested that Progressive "immediately undertake to properly adjust the[] loss [suffered by his clients] and pay to [the Smiths] the agreed upon value of the motorhome as provided in the policy [of insurance]." (Doc. 24, Exhibit 1, at 1.) Progressive was informed that if proper payment was not made within thirty (30) days, the Smiths would file suit seeking the "proceeds of the policy of insurance along with penalties, attorney fees, court costs, and additional appropriate damages." ( Id. at 2.) One day prior to the expiration of that 30-day period, that is, on July 2, 2014, Shelia Pourciau Smith and Bobby H. Smith, Sr. sat for their examinations under oath ( see Doc. 24, Exhibits 2 & 3), as allowed by their policy of insurance ( see Doc. 24, Exhibit 3, Examination Under Oath of Shelia Pourciau Smith, at 5). Shelia Smith maintained that she and her husband received their first notification of rising floodwaters in Riverside RV Park during the morning of May 1, 2014 ( see id. at 30) and later that day learned their RV had flooded ( see id. at 45). In addition, Mrs. Smith testified that she and her husband received information that there was flooding in Baldwin County on March 30, 2014, but that the RVs in the park, including their RV, were not in peril of the floodwaters. ( Id. at 49-50; see also id. at 57 (no one told she or her husband that their motorhome was underwater on April 30, 2014).)

Q Has anybody told you at all that the people were evacuated from the park as early as April 29th?
A No.
Q You don't have any knowledge of that?
A No, sir.
Q Okay. Do you have any knowledge that people were evacuated from the park on April 30th?
A No, sir.
Q Nobody has told you that?
A No, sir.
Q Nobody at Styx River has told your husband that to your knowledge?
A To my knowledge, no, sir.


Q Our investigation shows that the flooding of Riverside [RV Park] began late night on April the 29th to early morning on April 30th. And my question to you is: Other than the three gentlemen you have told me about, do you know of any other information that would contradict that?
A Not at this time.


Q Okay. My question was, do you have anything that would dispute that someone in Riverside RV [Park] who had a trailer in that park called before 3:00 p.m. on April 30th reporting that their trailer was underwater?
A No.

( Id. at 95, 96 & 102; see Doc. 24, Exhibit 2, Examination Under Oath of Bobby H. Smith, Sr., at 39 & 44 ("Q Okay. So if we have information that the park was flooded on both the 29th and 30th of April-the RV park, Riverside is what I'm referring to. If we have information about that being flooded on the 29th and 30th, do you think that's mistaken? A It is that because it wasn't flooded then.... Q... And so if they, among other things, had a report from somebody in Riverside RV park that called in on the 30th of April and said my trailer is underwater, that would be a good way for them to tell when the flood took place, wouldn't it? A That would be a good way, but I... know mine went under May the 1st. Q But you weren't there? A No, I wasn't there. Q And you know it based upon what other people have told you? A Yeah.").)[1]

Nine days after the Smiths' examinations under oath, on July 11, 2014 (Doc. 1), Progressive filed this declaratory judgment action seeking a declaration as to coverage on the basis that the "total loss of the insured RV may have occurred prior to the reinstatement of the Policy" and/or "prior to the beginning of the policy period, which was May 1, 2014." ( Id. at 5; see also Doc. 29, at 1 ("Progressive filed this declaratory judgment action seeking a declaration as to coverage on [the] basis that the loss may have occurred prior to the beginning of the Smiths' renewed policy period and may have occurred outside the coverage period of their policy that had lapsed.").) On August 13, 2014, the Smiths filed their answer and counterclaim. (Doc. 14.) Therein, the Smiths assert three counterclaims: breach of contract, bad faith, and unjust enrichment. ( Id. at 5-8.)

Progressive filed its motion to dismiss counterclaim on August 26, 2014. (Doc. 18.) Therein, petitioner seeks to dismiss the respondents'/counterclaim plaintiffs' counterclaim without prejudice pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction. ( See id. at 1.) Progressive takes the position that none of the claims the Smiths assert in their counterclaim are ripe for adjudication in light of its filing of the instant declaratory judgment action and requesting the Court to grant the relief set forth in the complaint. ( Compare id. at 2 ("Progressive filed the Declaratory Judgment action for the Court to examine the facts at issue in this case and make a declaration as to whether or not Progressive is required to provide Comprehensive Coverage for the loss claimed by the Respondents to have occurred [o]n May 1, 2014. No non-performance has been made under the contract.") with id. at 3 ("Progressive has alleged in its Complaint for Declaratory Judgment legitimate and arguable reasons why there may not be coverage for Respondent/Counterclaim Plaintiffs' claim, and requested that the Court make a determination as to whether Comprehensive Coverage exists under the insurance policy issued by Progressive, which would potentially be applicable to the alleged May 1, 2014, loss at issue in this case. Therefore, Respondents/Counterclaim Plaintiffs' Bad Faith claim is not ripe for adjudication.... Th[e] [third] Count fails on its face in that Progressive has not been unjustly enriched in this case. In fact, all of the premium paid by the Respondents/Counterclaim Plaintiffs have been paid back into the Court. Therefore, Progressive did not benefit from or been unjustly enriched by its receipt and use of Respondents'/Counterclaim Plaintiffs' premium payment. This Count clearly fails to state a claim upon which the Court has subject matter jurisdiction.").

In Andersen v. Omni Ins. Co., 2014 WL 838811 (N.D. Ala. March 4, 2014), the United States District Court, Northern Division of Alabama, Eastern Division, addressed a similar issue. Omni Insurance Company filed a Motion to Dismiss Andersen's Bad Faith claim filed against it based on the lack of subject matter jurisdiction pursuant to Federal Rule[] of Civil Procedure 12(b)(1). The Court citing Pontius v. State Farm Mut. Auto. Ins. Co., 915 So.2d 557 (Ala. 2006) and Ex parte Safeway Ins. Co., 990 So.2d 344 (Ala. 2008), opined that bad faith and breach of contract actions are premature without the presence of a justiciable controversy. Therefore, the Court determined that the claims should be dismissed without prejudice to allow the insured to bring the action when it presented a justiciable controversy. Before the Court now is a similar situation, the Respondents/Counterclaim Plaintiffs simply cannot bring a Breach of Contract claim, Bad Faith claim or Unjust Enrichment claim at this time because the court lacks subject matter jurisdiction over such claims.

( Id. at 4.) In their response in opposition, the Smiths contend that their claims are ripe for adjudication in light of Progressive's May 13, 2014 denial of their claim. (Doc. 22, at 4-6.) "Respondents contend that this denial constitutes a breach of contract and was made in bad faith, [2] and clearly, those issues are ripe for adjudication' as the claim has been denied and the Counterclaim specifically pleads that Progressive breached the insurance contract and committed bad faith by doing so." ( Id. at 5 (footnote omitted and another supplied).)[3] In reply, Progressive contends that its motion to dismiss is due to be granted since "there has been no actual denial of the claim for benefits to satisfy the elements of bad faith under Alabama law, or a claim for breach of the insurance contract by refusing to indemnify the insured[]s[] alleged loss.[4] Secondly, the counterclaim fails to sufficiently plead a constructive' denial of the claim for benefits. Thus, the counterclaim is due to be dismissed." (Doc. 24, at 2; see also id. at 2-5 (footnote added).)


A. Motion to Dismiss Standard.

The plaintiff initially brought its motion to dismiss solely pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. (Doc. 18.) A motion to dismiss pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction

can be based upon either a facial or factual challenge to the complaint. If the challenge is facial, "the plaintiff is left with safeguards similar to those retained when a Rule 12(b)(6) motion to dismiss for failure to state a claim is raised." [ Williamson v. Tucker, 645 F.2d 404, 412 (5th Cir. 1981)]. Accordingly, the "court must consider the allegations in the plaintiff's complaint as true." Id.
A "facial attack" on the complaint "require[s] the court merely to look and see if [the] plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in his complaint are taken as true for the purposes of the motion." Lawrence v. Dunbar, 919 F.2d 1525, 1529 (11th Cir. 1990) (quoting Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980)). "Factual attacks, ' on the other hand, challenge the existence of subject matter jurisdiction in fact, irrespective of the pleadings, and matters outside the pleadings, such as testimony and affidavits are considered.'" Id. Furthermore, in Williamson, the former Fifth Circuit held that "[t]he district court has the power to dismiss for lack of subject matter jurisdiction on any of three separate bases: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Williamson, 645 F.2d at 413.

McElmurray v. Consolidated Gov't of Augusta-Richmond County, 501 F.3d 1244, 1251 (11th Cir. 2007); see also Andersen v. Omni Ins. Co., 2014 WL 838811, *1 (N.D. Ala. Mar. 4, 2014) ("Attacks on subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1) come in two forms. Facial attacks' on the complaint require the court merely to look and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in his complaint are taken as true for the purposes of the motion. Factual attacks, ' on the other hand, challenge the existence of subject matter jurisdiction in fact, irrespective of the pleadings, and matters outside the pleadings, such as testimony and affidavits, are considered. These two forms of attack differ substantially. On a facial attack, a plaintiff is afforded safeguards similar to those provided in opposing a Rule 12(b)(6) motion- the court must consider the allegations of the complaint to be true. But when the attack is factual, the trial court may proceed as it never could under 12(b)(6) or Fed.R.Civ.P. 56. Because at issue in a factual 12(b)(1) motion is the trial court's jurisdiction-its very power to hear the case-there is substantial authority that the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. In short, no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." (internal emphasis, citations, brackets, and most quotation marks omitted)). The undersigned construes Progressive's jurisdictional argument-the petitioner having failed to specifically pigeonhole its jurisdictional attack-as a factual challenge because the petitioner never accepts the respondents'/counterclaim plaintiffs' allegations as true for purposes of its motion[5] ( compare Doc. 18, at 2 & 3 ("No non-performance has been made under the contract.... Progressive has alleged in its Complaint for Declaratory Judgment legitimate and arguable reasons why there may not be coverage for Respondent/Counterclaim Plaintiffs' claim[.]") with Doc. 24, at 2-3).[6]

B. May this Court Exercise Subject Matter Jurisdiction Over the Respondents' Counterclaims? Before addressing the arguments made by petitioner, the undersigned delineates the elements of each of the Smiths' counterclaims. "The elements of a breach-of-contract claim under Alabama law are (1) a valid contract binding the parties; (2) the plaintiffs' performance under the contract; (3) the defendant's nonperformance; and (4) resulting damages." Shaffer v. Regions Financial Corp., 29 So.3d 872, 880 (Ala. 2009) (internal quotation marks and citation omitted). Moreover, "[u]nder Alabama law, the insured bringing a claim of bad faith against its insurer must prove the following elements: (a) an insurance contract between the parties and a breach thereof by the defendant; (b) an intentional refusal to pay the insured's claim; (c) the absence of any reasonably legitimate or arguable reason for that refusal (the absence of a debatable reason); (d) the insured's actual knowledge of the absence of any legitimate or arguable reason; [and] (e) if the intentional failure to determine the existence of a lawful basis is relied upon, the plaintiff must prove the insurer's intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim.'" Scottsdale Indem. Co. v. Martinez, Inc., 2013 WL 360139, *3 (N.D. Ala. Jan. 29, 2013), quoting Ex parte Alfa Mut. Ins. Co., 799 So.2d 957, 962 (Ala. 2001). And, finally, "[t]o prevail on a claim of unjust enrichment under Alabama law, a plaintiff must show that: (1) the defendant knowingly accepted and retained a benefit, (2) provided by another, (3) who has a reasonable expectation of compensation." Matador Holdings, Inc. v. HoPo Realty Investments, L.L.C., 77 So.3d 139, 145 (Ala. 2011) (internal quotation marks and citation omitted).

At bottom, Progressive contends that the Smiths cannot-at this point in time- satisfy the elements of their breach of contract and bad faith[7] claims because there was "no actual denial of the claim for benefits[.]" (Doc. 24, at 2.)[8] The undersigned simply cannot agree with petitioner in this regard.[9] Progressive's May 13, 2014 letter constitutes a denial of the Smiths' claim, whether "conditional" or not. More importantly, because none of the information or testimony the Smiths supplied Progressive served to alter the petitioner's decision ( compare Doc. 22, Exhibit 1, at 2 with Doc. 24, Exhibits 1-3), the undersigned finds that petitioner denied the Smiths' claim, whether that denial is regarded as actual or constructive. See New Hampshire Ins. Co., supra, at *2-3. And Progressive's citation to the Andersen case from the Northern District of Alabama does not sway the undersigned to recommend disposition in petitioner's favor inasmuch as the respondents are correct that Andersen and the Alabama cases relied upon therein are distinguishable because all arose in the very different context of uninsured motorist insurance coverage. (Doc. 22, at 5 n.5.)[10] The Smiths correctly note that "[i]n [the] UIM context, the insurer is adverse to its insured and the liability of the carrier does not arise until the liability of the tortfeasor and the damages of the plaintiff are fixed[, ]" whereas, here, "the Smiths suffered a covered loss which Progressive had a duty to pay." ( Id. ) If this Court was to rule otherwise and dismiss the respondents' counterclaims, the Smiths likely would be deprived of any remedy. See Ex parte the Cincinnati Ins. Cos., 806 So.2d 376, 381 (Ala. 2001) ("If the claims against Cincinnati, in relation to the home-theft, had been filed as a counterclaim in the federal declaratory-judgment action, the parties and the c[ourt]s would have (1) avoided a substantial duplication of effort because (2) the original claim and counterclaim arose out of the same aggregate core of operative facts. It would have served the purposes of Rule 13 for Bargeron to have litigated her claims against Cincinnati in the same action in which Cincinnati sought a declaration of its rights and obligations under the homeowner's insurance policy; it would have avoided a multiplicity of actions, and all matters could have been resolved in one action. Therefore, insofar as Bargeron's claims relate to the matters at issue in the federal declaratory-judgment action and depend on the homeowner's policy, they are now barred-they were compulsory counterclaims that should have been asserted in the federal declaratory-judgment action. The trial court should have granted Cincinnati's motion to dismiss those claims. We, therefore, grant the petition and issue the writ of mandamus directing the circuit court to dismiss Bargeron's []claims.") (internal citations, quotation marks, and brackets omitted; brackets added). Indeed, for the Court to rule in the manner requested by Progressive would be contrary to the contents of its order dated October 7, 2014. ( See Doc. 29, at 3 ("Had this action proceeded without the declaratory judgment action, the Smiths would likely have sued Progressive for breach of contract, bad faith, and unjust enrichment, as they did in their counterclaim. Thus, this action is an inverted law suit' as to which the Smiths' right to a jury trial is preserved.").) Thus, this Court may properly exercise subject-matter jurisdiction over the Smiths' counterclaims.


Based upon the foregoing, the Magistrate Judge recommends that Progressive s Specialty Insurance Company's Rule 12(b)(1) motion to dismiss counterclaim (Doc. 18) be DENIED.


A copy of this report and recommendation shall be served on all parties in the manner provided by law. Any party who objects to this recommendation or anything in it must, within fourteen (14) days of the date of service of this document, file specific written objections with the Clerk of this Court. See 28 U.S.C. § 636(b)(1); FED.R.CIV.P. 72(b); S.D.ALA. L.R. 72.4. The parties should note that under Eleventh Circuit precedent, "the failure to object limits the scope of [] appellate review to plain error review of the magistrate judge's factual findings. " Dupree v. Warden, 715 F.3d 1295, 1300 (11th Cir. 2013) (emphasis in original). In order to be specific, an objection must identify the specific finding or recommendation to which objection is made, state the basis for the objection, and specify the place in the Magistrate Judge's report and recommendation where the disputed determination is found. An objection that merely incorporates by reference or refers to the briefing before the Magistrate Judge is not specific.

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