INSURANCE: Motion to dismiss putative class action challenging subrogation practices of GEICO and related entities granted in part including rejection of boilerplate allegations of personal jurisdiction over non-contracting entities based on a conspiracy theory… Molloy.
James Lee was in an MVA caused by another driver 8/5/19. He was injured and his vehicle was totaled. Lees were insured by GEICO and GEICO General. The at-fault driver was insured by The General Ins. with $25,000/$50,000 bodily injury and $20,000 property damage. Lees received $25,000 from the at-fault driver’s bodily injury coverage and an unspecified amount from GEICO and GEICO General under their med-pay. They also received $3,156.65 from the at-fault driver’s insurer and at least $14,194 from GEICO and GEICO General for property damage. However, they allege that they suffered at least $24,660.18 property damage including $19,124.90 for loss of their vehicle, $2,586.72 for loss of use, and $2,948.56 for damage to its contents. They also claim damages for the cost of a rental vehicle, future medical expenses, loss of income, loss of consortium, and attorney fees. Little detail is provided on the status of their claim against the at-fault driver except that it has not settled. However, GEICO and GEICO General have already subrogated $14,194 from the at-fault driver’s insurer, which Lees claim will prevent them from fully recovering.
Lees sued in State Court 4/3/20 on behalf of themselves and a putative class challenging the practices of GEICO and GEICO General and other GEICO entities with which they do not hold policies. The case was removed to this Court 5/12/20 and Lees filed an Amended Complaint for failure to pay UIM under their policy, violations of the MUTPA, breach of contract and the implied covenant, and conversion. They allege that the GEICO entities with which they did not have a policy are liable on a civil conspiracy theory and aiding & abetting. The GEICO entities moved to dismiss on the basis that Lees lack standing, the Court lacks personal jurisdiction over the non-contracting entities, and Lees failed to state plausible claims for relief.
GEICO seeks to dismiss for failure to state a claim under Rule 12(b)(6). However, standing is jurisdictional, so the motion is construed as a 12(b)(1) motion for lack of jurisdiction. White (9th Cir. 2000). To have standing, a “plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo (US 2016).
GEICO first argues that Lees failed to show injury in fact. “To establish injury in fact, a plaintiff must show that he or she suffered an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical.” Id. “An injury is imminent if the threatened injury is certainly impending, or there is a substantial risk that the harm will occur.” MEIC (9th Cir. 2014). Lees allege that GEICO’s subrogation impaired their ability to recover from the at-fault driver by depleting the available coverage. GEICO does not contest their concrete interest in recovery from the at-fault driver. Indeed, Montana law recognizes an insured’s right to be “made whole” before an insurer is entitled to subrogation. However, GEICO contends that the alleged harm to that interest is too speculative because it is “impossible to know” whether Lees will fully recover until after their claim against the at-fault driver is resolved. That is not the standard. They have alleged damages in excess of the at-fault driver’s remaining coverage. Paired with the reasonable inference that the subrogation weakens their litigation position against the at-fault driver and her insurer, this is enough to establish a “substantial risk” that they will not be made whole. Id.
GEICO also makes a cursory argument that any harm to Lees is not traceable to its conduct. But had it not subrogated $14,194 they could pursue that amount from the at-fault driver’s insurer. Concerns about double recovery and the amount to which they are ultimately entitled are merits issues. Lees have shown at this stage that GEICO’s conduct poses a substantial risk to their interest in being made whole.
GEICO argues that public policy disfavors allowing Lees’ claims to go forward, contending that their position disincentivizes insurers from making payments up front and treats subrogation differently from offsets. But federal courts sitting in diversity must apply the law of the forum state, and GEICO’s policy concerns have been rejected in Montana, where the insured’s right to be made whole takes precedence over the insurer’s right to subrogate. “When the sum recovered by the Insured from the Tortfeasor is less than the total loss and thus either the Insured or the Insurer must to some extent go unpaid, the loss should be borne by the insurer, for that is a risk the insured has paid it to assume.” Van Orden (Mont. 2002) (quoting Skauge (Mont. 1977) (emphasis in original).
II. Personal Jurisdiction
GEICO also seeks to dismiss the GEICO entities with which Lees do not hold policies for lack of personal jurisdiction under Rule 12(b)(2).
Lees contend that personal jurisdiction exists under Rule 4(b)(1)(A), which confers specific jurisdiction over claims arising out of “the transaction of any business within Montana,” and 4(b)(1)(B), which confers specific jurisdiction over claims arising out of “the commission of any act resulting in accrual within Montana of a tort action.” However, GEICO submitted a declaration from Sarah Davis, an underwriting supervisor who has been with the company for 23 years, affirming that GEICO Advantage, GEICO Choice, and GEICO Marine “do not write/provide auto insurance in Montana or subrogate any claims.” Lees argue that she only establishes that they are “not currently” operating in Montana and that “upon a demonstration of non-participation in Montana subrogation over the past eight years, the companies so demonstrating should be dismissed.” But it is Lees’ burden to demonstrate that jurisdiction is proper, and if they are unable to show that GEICO Advantage, GEICO Choice, and GEICO Marine operated in Montana, they likely cannot show that they are subject to personal jurisdiction under 4(b)(1).
But this Court lacks personal jurisdiction over all the non-contracting defendants, not just those 3, for a more fundamental reason: Lees have not shown that their claims arise from those entities’ conduct in Montana. They do not allege that the non-contracting Defendants participated in handling their claim or the decision to subrogate. Rather, they allege that the non-contracting Defendants are liable for “aiding and abetting” the wrongful subrogation and “civil conspiracy.” Montana courts have not addressed whether an alleged conspiracy establishes jurisdiction under 4(b)(1), but even if sufficient under state law, the conspiracy theory of personal jurisdiction, at least as pled here, fails under the Due Process Clause.
The 9th Circuit has neither recognized nor rejected the constitutional validity of basing personal jurisdiction on an alleged conspiracy, although it seems skeptical of the concept. The only published opinion on the issue concluded that personal jurisdiction under the theory does not exist where the plaintiff “alleges no facts to even suggest a conspiracy.” Underwager (9th Cir. 1995). The later unpublished Chirila (9th Cir. 2002) acknowledged “a great deal of doubt surrounding the legitimacy of this conspiracy theory of personal jurisdiction,” but as in Underwager, ultimately concluded that the allegations of conspiracy were too conclusory. Similarly, this Court reasoned in Steinke (D.Mont. 2003) that it lacked personal jurisdiction because the plaintiff had “not specifically alleged a conspiracy.” Among courts following a similar approach, a general rule has emerged that — assuming a conspiracy theory of personal jurisdiction is viable — to comport with due process “a plaintiff must set forth non-conclusory allegations that the defendant was a member of a conspiracy, that the defendant’s or his co-conspirator’s acts in furtherance of the conspiracy caused harm in the forum, and that the conspiracy individually targeted a known forum resident.” W. States Wholesale Natl. Gas Antitrust Litig. (D.Nev. 2009); see also UMG Recording (C.D. Cal. 2015) (“Even if the theory is viable, to comply with traditional notions of fair play and substantial justice, it must be based on more than conclusory allegations of the existence of a conspiracy.”); Brown (N.D. Cal. 2019) (collecting cases).
The allegations of a conspiracy here are too conclusory to establish personal jurisdiction over the GEICO entities with which Lees do not hold policies. The Amended Complaint merely repeats the general allegation that Defendants acted “jointly” or “engaged in concerted action” to assert wrongful subrogation claims. But the “statement that ‘[defendants] have been acting in concert’ is, by itself, merely conclusory and therefore not entitled to an assumption of truth.” Krypt (N.D. Cal. 2020). And that same allegation is reiterated 9 times without any detail about how the conspiracy commenced or was conducted. Only a single paragraph of the Amended Complaint alleges any concrete action by Defendants:
In addition to the adjustment of Plaintiffs’ claims within the state of Montana, Defendant Insurance Companies also jointly adjust and assert automobile subrogation claims in the State of Montana by (a) working together to design the adjustment procedures and subrogation assertion strategies knowingly designed to deprive insureds of their made whole rights; (b) jointly employing claims adjusters under a single jointly administered employment arrangement; (c) jointly training these adjusters to utilize for all such companies the same procedures in adjusting, including the procedures for collection of subrogation arising from damages suffered by Montana insureds; (d) jointly managing and directing these adjusters on specific procedures for asserting subrogation, and adjusting and evaluating subrogation rights, including the procedures for investigation and evaluation of the insureds losses and collection of subrogation arising from damages suffered by Montana insureds; (e) jointly compensating the adjusters for such conduct, and (f) jointly paying to such adjusters bonuses reflecting common profitability experienced by the collective companies through the implementation of the jointly developed and administered adjustment and subrogation strategies.
But with respect to the alleged conspiracy, it does no more than assert that Defendants acted “jointly.” It “does not allege the conspirators made an agreement specifically regarding [Montana] or its residents,” as required to establish personal jurisdiction based on a conspiracy. W. States.
What’s more is that these are boilerplate allegations, repeated verbatim from a complaint filed by the same counsel against other insurers. See, e.g., Johnson v. State Farm Mutual Auto Ins. (D.Mont. 2020). Nearly the entire pleading is recycled, with counsel barely bothering to use the party names, instead opting for the generic “Plaintiffs” and “Defendant Insurance Companies.” Nonspecific allegations that can be and have been swapped from case to case are insufficient to support personal jurisdiction under a conspiracy theory. Such a practice does not comport with the “traditional notions of fair play and substantial justice” embodied in the Due Process Clause. Walden (US 2014). The non-contracting GEICO entities are dismissed for lack of personal jurisdiction. The conspiracy and aiding & abetting claims, pled only as theories of liability, are also dismissed.
III. Failure to State a Claim
GEICO seeks to dismiss the remaining claims under 12(b)(6.
GEICO’s motion makes clear that it is not seeking to dismiss Lees’ UIM claim. (See Doc. 11 at 2 (seeking “an order dismissing all claims alleged in Plaintiffs’ First Amended Complaint except their Underinsured Motorist claim”).) Nonetheless, it argues that the claim should be dismissed because Lees “omit key facts.” Its argument relies on facts outside the pleadings, which is improper on a 12(b)(6) motion. Lee (9th Cir. 2001); Rule 12(d). The motion to dismiss is denied as to the UIM claim.
B. UTPA Claim
GEICO seeks to dismiss the UTPA claim to the extent that it is based on the failure to advance-pay medicals. Lees concede that Mears (D.Mont. 2012) forecloses their claim based on medicals that were not covered by the at-fault driver’s insurance. The motion to dismiss is granted on those limited grounds.
C. Contract Claims
GEICO argues that Lees cannot maintain a breach of contract or implied covenant claim against the non-contracting defendants. Because they are dismissed for lack of personal jurisdiction, this argument is unnecessary to consider. It also argues that Lees cannot maintain a claim for tortious breach of the implied covenant. Because Lees do not contest that point, the motion to dismiss is granted on those limited grounds.
GEICO argues that Lees’ conversion claim is barred by the UTPA preemption provision at MCA 33-18-242(3):
An insured who has suffered damages as a result of the handling of an insurance claim may bring an action against the insurer for breach of the insurance contract, for fraud, or pursuant to this section, but not under any other theory or cause of action.
Lees respond that the alleged wrongful subrogation does not qualify as handling of an insurance claim. However, based on the allegations in the Amended Complaint, the subrogation at issue was part & parcel of their claim to GEICO after the accident. Indeed, the subrogation only occurred because they submitted a claim to GEICO under the property damage coverage.
Their argument is also inconsistent with Montana law which allows insurers to subrogate when reasonable “to prevent duplicate payments for the same element of loss.” MCA 33-23-203(2). However, before exercising that right, an insurer must determine whether the insured has been made whole. Van Orden. By itself, then, subrogation does not convert the insured’s recovery; only wrongful subrogation can result in conversion. The Amended Complaint recognizes this. Count 4 alleges that the subrogation only amounts to conversion in this case “because the insurer has failed (a) to make an investigation and determination of all of the losses of the insured, and (b) to assure that the Plaintiffs have been made whole for all their damages as recognized by Montana law.” It goes on to allege that GEICO had “not attempted to investigate, evaluate or quantify the amount of Plaintiffs’ losses which are outside of the coverage’s provided by GEICO and GEICO General.” The failure to conduct a reasonable investigation also forms the basis, in part, of Lee’s UTPA claim. Ultimately, that the same conduct underlies both claims underscores that the UTPA preempts the conversion claim.
GEICO’s motion to dismiss is granted in part: the non-contracting GEICO entities are dismissed for lack of personal jurisdiction, the civil conspiracy and aiding & abetting claims are dismissed, the UTPA claim is dismissed to the limited extent that it is based on failure to advance pay medicals, the breach of the implied covenant claim is dismissed to the limited extent that it is based on a tortious breach, and the conversion claim is dismissed. The motion is denied in all other respects.
James Lee Const. et al v. Government Employees Ins. Co. et al, 44 MFR 229, 8/11/20.
Alan Lerner (Lerner Law Firm), Kalispell, Allan McGarvey (McGarvey, Heberling, Sullivan & Lacey), Kalispell, Brian Joos & Judah Gersh (Viscomi, Gersh, Simpson & Joos), Whitefish, and Evan Danno (Danno Law Firm), Kalispell, for Lees; Ian McIntosh & William Morris (Crowley Fleck), Bozeman, Sheila Carmody (Snell & Wilmer – Phoenix), and Courtney Henson (Snell & Wilmer – Tucson), for Defendants.
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