United States District Court, E.D. Wisconsin
STATE OF WISCONSIN LOCAL GOVERNMENT PROPERTY INSURANCE FUND, Plaintiff,
LEXINGTON INSURANCE COMPANY, THE CINCINNATI INSURANCE COMPANY, and MILWAUKEE COUNTY, Defendants.
Stadtmueller, U.S. District Judge
February 3, 2017, Defendant Lexington Insurance Company
(“Lexington”) filed a motion to dismiss a portion
of the complaint. (Docket #53). Plaintiff State of Wisconsin
Local Government Property Insurance Fund (the
“Fund”) opposed the motion February 24, 2017.
(Docket #63). Lexington replied in support of its motion on
March 10, 2017. (Docket #67). The motion is fully briefed
and, for the reasons explained below, it will be denied.
has moved to dismiss the Fund's third claim for relief,
titled “Bad Faith, ” pursuant to Federal Rule of
Civil Procedure 12(b)(6). This Rule provides for dismissal of
complaints which fail to state a viable claim for relief.
Fed.R.Civ.P. 12(b)(6). To state a viable claim, a complaint
must provide “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
Id. 8(a)(2). In other words, the complaint must give
“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) (citation omitted).
The allegations must “plausibly suggest that the
plaintiff has a right to relief, raising that possibility
above a speculative level[.]” Kubiak v. City of
Chicago, 810 F.3d 476, 480 (7th Cir. 2016) (citation
reviewing the Fund's complaint, the Court is required to
“accept as true all of the well-pleaded facts in the
complaint and draw all reasonable inferences in favor of the
plaintiff.” Id. at 480-81. However, a
complaint that offers “labels and conclusions” or
“a formulaic recitation of the elements of a cause of
action will not do.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). The Court must identify allegations
“that, because they are no more than conclusions, are
not entitled to the assumption of truth.” Id.
the truth of the Fund's well-pleaded allegations and
drawing all reasonable inferences in its favor, the relevant
facts are as follows. The Fund insured, inter alia,
the Milwaukee County courthouse located at 901 North 9th
Street. (Docket #1-2 at 2). The Fund then purchased a
reinsurance policy from Lexington. Id. at 2-3. On
July 6, 2013, a fire in the courthouse caused an estimated
$18 million dollars in damage. Id. at 14-15.
Fund manager made a determination of the loss and advanced
payment to Milwaukee County. Id. at 8. Thereafter,
the Fund made a claim on the Lexington policy. Id.
at 16. Lexington has, to-date, paid five million dollars on
the claim. Id. From July 2013 to November 2014, the
Fund repeatedly requested that Lexington confirm coverage and
pay the remainder of the claim. Id. Lexington failed
to do so. Id. Instead, in November 2014, it produced
an expert report on the cause of the fire (the
“Report”), which placed blame on causes excluded
from coverage under Lexington's policy. Id. at
17. The Report was accompanied by a letter denying any
further coverage. Id. The Fund takes issue with the
Report's conclusions. Id.
Fund further alleges a host of bad faith conduct by Lexington
independent of Lexington's ultimate coverage
determination. Id. at 22-23. The Fund focuses on
Lexington's alleged delaying tactics and its attempt to
change the scope of its policy post hoc.
Id. at 17-18, 22-23. The Fund's bad faith count
alleges that, for all of the reasons stated in the complaint,
Lexington's failure to pay the full amount of the
Fund's claim lacked a reasonable basis and was done
willfully and in reckless disregard of the Fund's rights.
Id. at 24.
for bad faith in failing to pay insurance benefits requires
1) “the absence of a reasonable basis for denying
benefits of the policy, ” and 2) “the
defendant's knowledge or reckless disregard of the lack
of a reasonable basis for denying the claim.”
Anderson v. Continental Ins. Co., 271 N.W.2d 368,
376 (Wis. 1978). The first element is negated when coverage
was “fairly debatable” by the insurer.
Id. at 377. Coverage is fairly debatable when the
facts “show the absence of a reasonable basis for
denying the claim, i.e., would a reasonable insurer
under the circumstances have denied or delayed payment of the
claim under the facts and circumstances.” Id.
This includes a consideration of whether the “claim was
properly investigated and whether the results of the
investigation were subjected to a reasonable evaluation and
acknowledges that the Fund pleads that its conduct
constitutes bad faith; namely, “[t]he Fund . . .
alleges that Lexington's position with regard to coverage
was without any reasonable basis in fact or law and Lexington
knew or should have known that its position lacks any
reasonable basis in fact or law.” (Docket #54 at 6).
However, Lexington counters that these allegations are
negated by the Report, which supports Lexington's denial
of coverage. Id. at 8. Further, the Report stands
uncontradicted and thus, Lexington argues, provided the
requisite reasonable basis to deny the claim. Id. In
Lexington's own words,
[h]ow can the Fund demonstrate that Lexington's position
was objectively unreasonable when it can't even allege
with certainty, but merely upon information and belief, that
the cause of the event and damage was something other than
what has been opined by Lexington's investigating
experts?. . . It can't, and no rational trier-of-fact
could find, by clear and convincing evidence, that the claim
was not “fairly debatable” at the time Lexington
issued its denial.
Id. at 9 (citation omitted).
argument ignores the standard of review and Wisconsin's
approach to bad faith claims. In ruling on a motion to dismiss,
the Court cannot consider what a “rational
trier-of-fact” would ultimately find. Id. at
9. Rather, as acknowledged by Lexington itself, the
Fund's allegations state a claim for bad faith. Viewing
those allegations in a light most favorable to the Fund, the
bad faith claim must clearly survive dismissal at this stage.
The Fund is entitled to utilize the discovery process to
substantiate its allegations and, as seems likely, obtain its
own expert evaluation of the cause of the fire. The Court
need not enter the fray between the parties about the import
of the Report and its interaction with the applicable policy
language. That is a matter for the trier of fact or, if the
facts are undisputed, summary judgment.
conclusion is buttressed by every one of
Lexington's citations applying Wisconsin law, which
addressed bad faith claims at the summary judgment stage or
after a trial and, if dismissing them, did so on the
undisputed facts at hand. Lexington has not presented a single
case wherein a bad faith claim was dismissed at the pleading
stage, much less one comparable to the allegations presented
here. This Court will not be the first to entertain dismissal
of a bad faith claim in this manner. In essence, Lexington
wants to show that the Fund has no evidence for its bad faith
claim before the Fund has been afforded an opportunity to
seek that very evidence in this litigation. The Court will
not countenance this approach.
Court closes by addressing an erroneous position underlying
Lexington's motion. Lexington cites the Report as part of
the proposition that “[w]hen a written instrument that
is a part of the pleadings contradicts allegations in the
complaint, the written instrument trumps the
allegations.” (Docket #54 at 6). The actual rule is,
however, that “[w]hen an exhibit incontrovertibly
contradicts the allegations in the complaint, the exhibit
ordinarily controls, even when considering a motion to
dismiss.” Bogie v. Rosenberg, 705 F.3d 603,
609 (7th Cir. 2013) (emphasis added). For the Report to
“incontrovertibly contradict” the ...