United States District Court, N.D. Alabama, Southern Division
G. CORNELIUS U.S. MAGISTRATE JUDGE.
pending are the motions to dismiss for failure to state a
claim filed by the defendants, State Farm Mutual Automobile
Insurance Company (Doc. 33) and Nationwide General Insurance
Company (Doc. 32). The motions have been fully briefed and
are ripe for adjudication. (See Docs. 40, 42, 43).
The parties have consented to magistrate judge jurisdiction
pursuant to 28 U.S.C. § 636(c). (Doc. 18). As explained
below, the motions are due to be granted in their entirety.
STANDARD OR 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 between the plaintiff, Donna
Smith, and two insurers following a traffic accident. The
accident occurred on July 30, 2013, as a third-party, Daniel
Voss, was riding his bicycle southbound in the right-hand
lane of Smith Road in rural Calhoun County, Alabama. (Doc. 27
at 4-5). The plaintiff was driving northbound on
Smith Road. (Id. at 5). The amended complaint
alleges the plaintiff, who was speeding and talking on her
cell phone, crossed the center line and collided with Voss.
(Id.). Voss was seriously injured and was flown to
UAB hospital, where he was diagnosed with fractures to his
skull and face, as well as severe and traumatic brain
injuries. (Id.). Voss 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. at 5-6). He suffered serious and
permanent changes to his brain function and incurred over
$725, 000 in medical expenses. (Id. at 6).
was the plaintiff's insurer; her policy provided $25, 000
in liability coverage. (Doc. 27 at 6). The plaintiff reported
the accident to Nationwide and cooperated with her insurer.
(Id.). State Farm insured Voss's parents; Voss
was covered by four State Farm policies, providing a total of
$100, 000 in uninsured/underinsured motorist coverage.
(Id. at 4). Voss's representatives contacted
State Farm in due course and cooperated with Voss's UIM
insurer. (Id. at 6).
counsel wrote Nationwide in August 2013, informing the
plaintiff's liability insurer of Voss's injuries.
(Doc. 27 at 6-7). In October 2013, Voss's counsel
informed Nationwide that Voss was paralyzed on his right side
and his medical bills exceeded $460, 000; Voss's counsel
made a policy limits demand. (Id. at 7). Nationwide
promptly responded, offering its $25, 000 policy limits to
settle all claims against the plaintiff in exchange for a
release from further liability against her. (Id.).
Voss's counsel notified State Farm of the plaintiff's
underinsured status and Nationwide's tender of the
plaintiff's liability policy limits. (Id. at 9).
January 27, 2014, State Farm took an examination under oath
("EUO") of Voss and his parents-its UIM insureds.
(Doc. 27 at 9). The amended complaint alleges this was State
Farm's only investigation into the accident, despite
Voss's brain damage and the fact that his parents did not
witness the accident. (Id.). On February 6, 2014,
State Farm notified Voss-without explaining its
rationale-that it would not consent to his settlement with
the plaintiff, 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 amended complaint alleges State
Farm chose to front Nationwide's policy limits without
regard to the possibility it could expose the plaintiff to an
excess judgment. (Id.).
State Farm's decision to front Nationwide's policy
limits, Voss's counsel attempted to convince State Farm
to reconsider, noting Nationwide had quickly tendered its
limits and that evidence at the scene indicated the plaintiff
was at fault. (Doc. 27 at 14). State Farm refused to change
its position and on April 9, 2014, sent a check to Voss for
the fronted funds. (Id.). Soon thereafter, Voss
filed a lawsuit against the plaintiff in state court and
notified State Farm of the lawsuit. Voss v. Smith,
No. 2014-900224 (Calhoun Cty. Cir. Ct. filed April
23, 2014) (see Doc. 27 at 14-15). Voss's state
court complaint did not name State Farm, and it appears State
Farm did not intervene. (See Doc. 27 at 15;
Voss, No. 2014-900224). Neither did State Farm
pursue its right of subrogation against the plaintiff,
investigate whether subrogation was possible, or monitor the
state court lawsuit. (Doc. 27 at 15-16).
in the state court case revealed: (1) the plaintiff had a
history of speeding in the area of the accident; (2)
individuals living near the accident site had repeatedly
warned the plaintiff about her dangerous driving in the area,
including mere weeks before the accident; (3) the
plaintiff's version of events leading up to the accident
was not defensible; (4) the plaintiff was talking on her cell
phone at the time of the accident; and (5) Voss was in his
lane at the time the plaintiff collided with him. (Doc. 27 at
15-16). The state court trial proceeded to a $1, 900, 000
jury verdict against the plaintiff in favor of Voss.
(Id. at 16).
September 30, 2016-before the deadline for the
plaintiff's post-judgment motions or appeal had run-State
Farm sent a check to Voss for the remainder of its UIM
coverage limits. (Doc. 27 at 16-17). On October 10, 2016,
Nationwide sent Voss the $25, 000 liability limits of the
plaintiff's policy. (Id. at 17). On October 14,
2016, the plaintiff's lawyer-a Nationwide employee-filed
post-judgment motions, which were denied; the plaintiff did
not appeal. (Id. at 17). After Nationwide paid its
policy limits, the plaintiff was left with a $1, 775, 000
excess judgment, excluding interest. (Id.).
August 15, 2017, the plaintiff filed the instant matter
against State Farm and Nationwide in this court on the basis
of federal diversity jurisdiction. (Doc. 1). After the
defendants moved to dismiss, the plaintiff filed an amended
complaint. (Doc. 27). The amended complaint asserts a total
of ten claims. Against State Farm, the amended complaint
asserts claims for: (1) negligent failure to settle; (2)
wanton failure to settle; (3) bad faith; and (4) abuse of
process. (Id. at 3-26). Against Nationwide, the
amended complaint asserts claims for (1) negligent failure to
settle; (2) wanton failure to settle; (3) bad faith; and (4)
breach of contract. (Id. at 26-29, 32). Finally, the
amended complaint asserts claims for outrage and civil
conspiracy against both State Farm and Nationwide.
(Id. at 30-32).
amended complaint contends State Farm failed to conduct a
reasonable investigation of the accident, especially in light
of the plaintiff's potential exposure. (Doc. 27 at
17-18). The amended complaint alleges State Farm regularly
engages in this conduct in circumstances, like the
plaintiff's, where its UIM insured suffers catastrophic
injuries and the tortfeasor has minimum limits or limits that
are dwarfed by the insured's damages. (Id. at
19-20). Instead, under the guise of protecting subrogation
rights it rarely or never pursues, the amended complaint
alleges State Farm: (1) refuses to consent to its
insureds' settlements with tortfeasors; (2) denies its
insureds' UIM claims without investigation or evaluation;
(3) fronts the tortfeasors' limits; (4) opts-out or
chooses not to intervene in the ensuing litigation over
liability; and (5) blindly waits for a verdict. (Id.
amended complaint asserts financial motives drove State
Farm's intentional failure to investigate and fairly
evaluate the accident. (Doc. 27 at 21-22). These
motives-which apply to both the decision to decline consent
to Voss's settlement with the plaintiff and the refusal
to promptly pay or settle Voss's UIM claim-include: (1)
avoiding the cost of investigation and litigation; (2)
collecting investment income on UIM proceeds rightfully
belonging to the Voss; (3) pressuring Voss to settle his UIM
claims for less than policy limits by forcing him to try his
case against the plaintiff; (4) maintaining artificially low
reserves; and (5) hoping it got lucky with a defense verdict.
(Id.). The amended complaint further alleges State
Farm never investigated whether subrogation against the
plaintiff was even possible. (Id. at 22-23).
Nationwide, the amended complaint alleges the plaintiff's
liability insurer's offer of her policy limits to Voss
was insufficient in light of State Farm's foreseeable
fronting maneuver. (Doc. 27 at 27-28). The plaintiff contends
State Farm, with Nationwide's assistance, misused the
Lambert fronting procedure to effectively strip her
of liability protection. (Id. at 30). The amended
complaint further alleges Nationwide and State Farm have
agreed and conspired to never seek subrogation against each
other's insureds, instead using the Lambert
fronting procedure and the guise of protecting its
subrogation interests to hide the existence of insurance from
juries and force liability insurers to provide a de
minimis defense to underinsured tortfeasors.
(Id. at 30-31).
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:
(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 ...