United States District Court, N.D. Alabama, Eastern Division
MEMORANDUM OPINION AND ORDER 
G. CORNELIUS U.S. MAGISTRATE JUDGE.
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.
STANDARD OF REVIEW
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).
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
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,  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).
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).
December 4, 2013, State Farm's retained counsel
responded, expressing State Farm's desire to investigate
the accident. (Doc. 1-1 at 16-17). 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).
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).
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). 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).
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).
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).
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
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. 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.
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
(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 ...