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Voss v. State Farm Mutual Automobile Insurance Co.

United States District Court, N.D. Alabama, Eastern Division

September 27, 2018

DANIEL VOSS, Plaintiff,



         Presently pending is the motion to dismiss for failure to state a claim filed by the defendant, State Farm Mutual Automobile Insurance Company. (Doc. 2). The motion has been fully briefed and is ripe for adjudication. (See Docs. 7, 14). As explained below, the motion is due to be granted in part and denied in part.


         "Federal Rule of Civil Procedure 8(a)(2) requires only 'a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to 'give the defendant fair notice of what the … claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Rule 8 "does not require 'detailed factual allegations,' but it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Id. at 678 (quoting Twombly, 550 U.S. at 555, 557) (internal quotation marks omitted).

         To survive a motion to dismiss for failure to state a claim on which relief may be granted brought pursuant to Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570). "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. (citing Twombly, 550 U.S. at 556). "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. "Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." Id. (quoting Twombly, 550 U.S. at 557) (quotation marks omitted).


         This lawsuit presents a dispute over entitlement to underinsured motorist ("UIM") benefits following a traffic accident in rural Calhoun County, Alabama. The accident occurred on July 30, 2013, as the plaintiff, Daniel Voss, was riding his bicycle southbound in the right-hand lane of Smith Road. (Doc. 1-1 at 13). Donna Smith, a non-party to this lawsuit, [2] was driving northbound on Smith Road. The complaint alleges Smith, who was speeding and talking on her cell phone, crossed the center line and collided with the plaintiff. (Id.). The plaintiff was seriously injured and was flown to UAB hospital, where he was diagnosed with fractures to his skull and face, as well as serve, traumatic brain injuries. (Id. at 14). The plaintiff was comatose for two weeks and hospitalized for a month, spent two weeks receiving inpatient rehabilitation, and has undergone at least four brain surgeries. (Id.). The complaint alleges the plaintiff has suffered serious and permanent changes to his brain function and incurred over $726, 000 in medical expenses. (Id. at 15).

         In August 2013, the plaintiff's family hired a lawyer who notified Smith's liability insurer, Nationwide, of the accident and the plaintiff's injuries. (Doc. 1-1 at 15). In October 2013, the plaintiff's lawyer made a policy limits demand, notifying Nationwide the medical expenses exceeded $460, 000 at that point. (Id.). Less than a month later, Nationwide provided proof that Smith's policy provided $25, 000 in liability coverage and offered its policy limits. (Id.). The plaintiff's counsel notified State Farm-the plaintiff's parents' UIM carrier-of the accident, Nationwide's tender of its $25, 000 policy limits, and that a claim for UIM benefits would be forthcoming. (Id. at 16).

         On December 4, 2013, State Farm's retained counsel responded, expressing State Farm's desire to investigate the accident. (Doc. 1-1 at 16-17).[3] On January 27, 2014, State Farm's counsel conducted an examination under oath ("EUO") of the plaintiff and his parents. (Id. at 17). The complaint alleges the plaintiff did not remember the accident and his parents did not witness it. (Id. at 17, 22). The complaint further alleges the EUO was State Farm's only investigation into the accident. (Id. at 17). On February 6, 2014, State Farm informed the plaintiff-without explaining its rationale-it would not consent to the settlement with Smith, instead fronting Nationwide's policy limits pursuant to the procedures set out in Lambert v. State Farm Mut. Auto. Ins. Co., 576 So.2d 160 (Ala. 1991). (Id.)

         The plaintiff's counsel responded on February 10, 2014, requesting State Farm to reconsider its refusal to consent to the settlement with Smith, stating the plaintiff had no interest in suing Smith or collecting against her directly. (Doc. 1-1 at 18). The letter informed State Farm the plaintiff's medical expenses were over $500, 000 and proposed that State Farm simply pay its $100, 000 UIM policy limits. (Id.). The letter closed by requesting State Farm to either: (1) consent to the settlement with Smith; or (2) attempt to negotiate a settlement regarding the UIM benefits. (Id.). On February 18, 2014, State Farm responded and, after again noting the possible coverage issue regarding the delay in notification, stated there was evidence to suggest Smith was not liable and the plaintiff was contributorily negligent. (Id. at 19). The letter did not describe any specific evidence supporting the plaintiff's contributory negligence; neither did it respond to the plaintiff's policy limits demand. (Id.; see Doc. 14-2 at 1-2).

         The plaintiff responded on February 25, 2014, noting Nationwide had quickly tendered its limits, claiming evidence at the scene indicated Smith was speeding when she hit the plaintiff, and requesting State Farm to reconsider. (Doc. 1-1 at 20).[4] On February 27, 2014, State Farm's counsel informed the plaintiff that State Farm would stand on its decision to front Nationwide's policy limits. (Id. at 21). On April 9, 2014, State Farm sent a check for the $25, 000 in fronted funds to be held in trust pending resolution of the plaintiff's claims against Smith. (Doc. 1-1 at 22).

         The plaintiff subsequently filed a lawsuit against Smith in state court. Voss v. Smith, No. 2014-900224 (Calhoun Cty. Cir. Ct. filed April 23, 2014) (see Doc. 14-1 at 1-6). The state court complaint did not name State Farm, and State Farm did not intervene. (Doc. 1-1 at 22-23). Neither did State Farm pursue subrogation against Smith or monitor the state court lawsuit. (Id. at 24). Discovery in the state court case revealed: (1) Smith had a history of speeding in the area of the accident; (2) individuals living near the accident site had repeatedly warned Smith about her dangerous driving in the area, including mere weeks before the accident; (3) Smith's version of events leading up to the accident was not credible; (4) Smith was talking on her cellphone at the time of the accident, a fact she lied about during her deposition; and (5) the plaintiff's medical bills exceeded $726, 000. (Id. at 24-25). The state court trial proceeded to a $1, 900, 000 jury verdict against Smith in favor of the plaintiff. (Id. at 26).

         On September 30, 2016-before the deadline for Smith's post-judgment motions or appeal had run-State Farm sent a check to the plaintiff for the remainder of its UIM coverage limits. (Doc. 1-1 at 26). Smith's counsel subsequently filed post-judgment motions, which were denied; Smith did not appeal. (Id.). After Nationwide paid its policy limits, plaintiff was left with a $1, 775, 000 excess judgment, excluding interest. (Id. at 27).

         On July 27, 2017, the plaintiff filed the instant complaint against State Farm in the Circuit Court of Calhoun County, asserting claims for bad faith, breach of contract, fraud, and outrage. (Doc. 1-1). State Farm removed to this court on the basis of diversity jurisdiction. (Doc. 1). The complaint alleges financial motives drove State Farm's intentional failure to investigate and fairly evaluate the plaintiff's insurance claim. (Doc. 1-1 at 24). These motives- which apply to both the decision to decline consent to the plaintiff's settlement with Smith and the refusal to pay or settle the plaintiff's UIM claim absent a judgment against Smith-include: (1) avoiding the cost of investigation and litigation; (2) collecting investment income on funds rightfully belonging to the plaintiff; (3) pressuring the plaintiff to settle for less than policy limits by forcing the plaintiff to try his slam-dunk claims against Smith; and (4) maintaining artificially low reserves. (Doc. 1-1 at 28-29). The complaint further alleges State Farm regularly engages in this conduct in circumstances, like the plaintiff's, where: (1) the claim involves catastrophic injuries; (2) the insured has substantial UIM coverage; and (3) the tortfeasor has minimum limits or limits that are dwarfed by the insured's damages. (Doc. 1-1 at 10-11). The complaint alleges that, rather than pay valid UIM claims, State Farm engages in minimal investigation, forces the tortfeasor to defend cases of clear liability, and hold out on a settlement in hopes that: (1) a jury will find against the insured; (2) the insured will die before securing a judgment; or (3) the insured will be pressured into settling the UIM claim for less than policy limits. (Id. at 11-12).


         Because this is a diversity action, Alabama substantive law governs. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Under Alabama's uninsured motorist statute, in order for an insured to be entitled to UIM benefits, the insured must be "legally entitled to recover" from the owner or driver of the underinsured vehicle. ALA. CODE § 32-7-23.[5] The Alabama Supreme Court has recognized the conflicting rights of UIM insureds and their insurers when handling UIM claims. Lowe v. Nationwide Ins. Co., 521 So.2d 1309 (Ala. 1988). Under Lowe, when an insured sues a tortfeasor and also seeks UIM benefits, the insured may either join the UIM insurer as a party or simply notify the UIM insurer of the lawsuit against the tortfeasor and the possibility of a UIM claim following the trial. Id. at 1310. Where the insured names the UIM insurer in the lawsuit, the UIM insurer has the option to participate in the litigation or opt-out- choosing not to participate in the trial. Id. Where the insured does not name the UIM insurer in the lawsuit, the insurer can choose to intervene or stay out of the case. Id. Under any of these scenarios, the UIM insurer is bound by the liability and damages determinations at trial. Id.

         In Lambert, the Alabama Supreme Court addressed the conflict between a UIM insurer's subrogation rights against the tortfeasor and the UIM insured's right to settle with the tortfeasor. The court held an insured cannot settle a claim against a tortfeasor absent the consent of the UIM insurer. 576 So.2d at 167. The court also provided the following "general rules" regarding the procedure to be followed by UIM insureds and insurers, noting "any procedure must take into consideration the facts and circumstances of each individual case." Id.

(1) The insured, or the insured's counsel, should give notice to the underinsured motorist insurance carrier of the claim under the policy for underinsurance benefits as soon as it appears that the insured's damages may exceed the tortfeasor's limits of liability coverage.
(2) If the tort-feasor's liability insurance carrier and the insured enter into negotiations that ultimately lead to a proposed compromise or settlement of the insured's claim against the tort-feasor, and if the settlement would release the tort-feasor from all liability, then the insured, before agreeing to the settlement, should immediately notify the underinsured motorist insurance carrier of the proposed settlement and the terms of any proposed release.
(3) At the time the insured informs the underinsured motorist insurance carrier of the tort-feasor's intent to settle, the insured should also inform the carrier as to whether the insured will seek underinsured motorist benefits in addition to the benefits payable under the settlement proposal, so that the carrier can determine whether it will refuse to consent to the settlement, will waive its right of subrogation against the tort-feasor, or will deny any obligation to pay underinsured motorist benefits. If the insured gives the underinsured motorist insurance carrier notice of the claim for underinsured motorist benefits, as may be provided for in the policy, the carrier should immediately begin investigating the claim, should conclude such investigation within a reasonable time, and should notify its insured of the action it proposes with regard to the claim for underinsured motorist benefits.
(4) The insured should not settle with the tort-feasor without first allowing the underinsured motorist insurance carrier a reasonable time within which to investigate the insured's claim and to notify its insured of its proposed action.
(5) If the uninsured motorist insurance carrier refuses to consent to a settlement by its insured with the tortfeasor, or if the carrier denies the claim of its insured without a good faith investigation into its merits, or if the carrier does not conduct its investigation in a reasonable time, the carrier would, by any of those actions, waive ...

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