Lawson v. Federated Rural Electric Ins. Exchange and Federated Rural Electric Management Corp.

INSURANCE BAD FAITH: Amendment to add NIED and IIED to third-party bad faith claims not precluded by MCA 33-18-242(4) (2023) or futility… Johnston.

NorVal Electric Cooperative paid a total of $1,702,148.43 damages to former office manager Shalaine Lawson based on her claims that General Manager Craig Herbert subjected her to sexual comments and touching which escalated during a business trip when he suggested that they meet in his hotel room and when she sought to report his conduct he made escalating threats against her job and NorVal blocked her from complaining to other than him. Under a consent decree in a separate EEOC case approved 4/29/24, NorVal is to pay $50,000 punitives to Lawson.

Lawson then sued Federated Rural Electric Ins. Exchange and Federated Rural Electric Management Corp. asserting in her complaint filed 3/5/24 violation of §33-18-201, common law bad faith, and negligence in connection with their handling of her claims. She now seeks to add additional causes for NIED and IIED. Federated argues that MCA 33-28-242(4) (2023) precludes such claims. Lawson argues that it does not retroactively apply to her claims of negligent and intentional infliction of emotional distress. She relies on a recent order from Judge Morris in Dzintars v. Fireman’s Fund in support of her argument.

In Dzintars, Morris denied a Rule 12(b)(6) motion to dismiss plaintiffs’ claims for common law bad faith, NIED, and IIED, finding that the Legislature’s 2023 amendment to MCA 33-18-242 did not retroactively apply to such claims. The Legislature added a new subsection (4) that provides:

A third-party claimant who has suffered damages as a result of the handling of an insurance claim may bring an action against the insurer for fraud or pursuant to this section, but not under any other theory or cause of actions. A third-party claimant may not bring an action for bad faith in connection with the handling of an insurance claim.

Lawson contends that her additional negligent and intentional infliction claims should be allowed based on the same reasoning.

Federated contends that Dzintars was procedural rather than substantive. However, it was based on an analysis of the retroactive application of the new MCA 33-18-242(4). Morris reasoned:

The Montana Legislature has directed that “no law contained in any of the statutes of Montana is retroactive unless expressly so declared.” MCA 1-2-109 (2023). A presumption against retroactive application of statutes exists under Montana law. Neel (Mont. 1984); see also Boettcher (Mont. 2007) (citing Anderson (Mont. 1998) (“We will not apply a statute retroactively unless the Legislature clearly expresses its intention of such retroactive application.”). “Substantive rights between parties to an action are determined by the law in effect on the date of the injury.” Anderson (citing Cadwell (Mont. 1987)).

The Montana Legislature enacted MCA 33-18-242(4) in 2023 S.B. 165. The statute’s language does not specify that the Montana Legislature intended the statute to apply retroactively. Id. The new law prohibits the assertion of common law bad faith and infliction of emotional distress claims against third-party insurers. Montana law did not bar third parties from bringing common law bad faith claims or other claims based on the handling of insurance claims until October 1, 2023. Compare MCA 33-18-242 (2021) to MCA 33-18-242(4) (2023). Plaintiffs’ claims are not barred by §33-18-242(4) because the alleged conduct and injuries occurred in 2022.

Lawson’s proposed new claims allegedly occurred before enactment of §33-18-242(4) (2023) and therefore Federated’s reliance on this new statute is misplaced. Lawson’s proposed amended claims are to be determined by MCA 33-18-242 (2021) which does not preclude claims for negligent or intentional infliction of emotion distress that she seeks to advance in her amended complaint.

Federated further argues that Lawson’s proposed amendment is futile as emotional distress damages are available based on her previously pled UTPA claims. In determining futility, courts consider whether no set of facts can be proved that would constitute a valid and sufficient claim or defense. Miller (9th cir. 1988). The no “set of facts” standard was designed to match the standard for determining sufficiency of a pleading under Rule 12(b)(6).

A complaint may be dismissed for failure to state a claim pursuant to 12(b)(6) “only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” Mendiondo (9th Cir. 2008). In considering whether a complaint states a claim a court must “construe the pleadings in the light most favorable to the nonmoving party,” Capp (9th Cir. 2019), accepting as true all factual allegations in the complaint and drawing all reasonable inferences in the nonmoving party’s favor, Moreno (9th Cir. 2022).

After reviewing the proposed amendments and accepting the allegations as true, the Court finds that the amended complaint sets forth plausible claims for relief and would survive a motion to dismiss.

Federated has also failed to show that it will be prejudiced by the amendment, contending only that Lawson’s claims are redundant. Although they may be redundant of her request for emotional distress damages under her UTPA claims, redundancy is not the same as futility. The Court cannot conclude that the amended complaint is futile as it cannot determine at this juncture whether she will be able to develop facts entitling her to relief on Counts IV and V of her amended complaint or whether Federated has affirmative or other defenses to these claims.

(The case settled 11/5/24 in mediation with Magistrate DeSoto.)

Lawson v. Federated Rural Electric Ins. Exchange and Federated Rural Electric Management Corp., 45 MFR 6, 11/1/24.

Todd Shea (Shea Law Firm), Bozeman, for Lawson; Randy Nelson & Tom Bancroft (Nelson Law Firm), Billings, for Federated.