The plaintiffs claim that AMCO Insurance Company misrepresented the validity of certain provisions in their insurance policy and mishandled their insurance claim. AMCO moves for judgment on the pleadings and summary judgment. For the most part the motions are well taken as is set forth in the reasoning below.
AMCO issued a "Premier Businessowners Policy" to Sherri and Michael Hayes, who operated Michael's Convenience Stores. They were sued after an underground fuel leak occurred at their store. AMCO initially provided a defense under a reservation of rights.
AMCO took the position that the policy did not cover the leak because of policy exclusions. It filed a declaratory judgment action in state court. The state court, though, determined that there was coverage because the policy violated the Property and Casualty Insurance Policy Language Simplification Act, Montana Code Annotated § 33--15--333 to 33--15--340. Specifically, the court concluded that the policy violated Section 33--15--337(2) because the policy was not self contained-AMCO's determination that there was no coverage depended on the examination and application of separate forms within the policy. As a result, the state court found the policy exclusions were void. AMCO continued to provide the plaintiffs with a full defense and it indemnified them up to the policy limits.
The plaintiffs filed this lawsuit in state court alleging several claims: misrepresentation, violation of Language Simplification Act, common law bad faith, statutory law bad faith, breach of contract, and fraud. The plaintiffs sought compensatory and punitive damages. AMCO removed the case to this Court.
Plaintiffs characterize their claims as follows: "Plaintiffs' claims are based upon AMCO's issuance of a policy which it knew, or should have known, did not comply with Montana law and reliance upon provisions of that unlawful policy to disclaim coverage even when it knew, or should have known, coverage existed." (Plaintiffs' Response Br., doc. 37 at 7--8.)
AMCO moves for summary judgment and judgment on the pleadings. The plaintiffs oppose the motion and ask the Court to defer its ruling until after discovery has been completed.
AMCO is entitled to judgment on the pleadings on the plaintiffs' claims for misrepresentation, violation of the Language Simplification Act, common law bad faith, and fraud. AMCO is also entitled as a matter of law to summary judgment on the plaintiffs' breach of contract claim. A deferred ruling on the Unfair Trade Practices Act claim and the request for punitive damages is appropriate until discovery has closed and the parties have had an opportunity to file supplemental briefs.
A motion for judgment on the pleadings under Rule 12(c) is the functional equivalent of a motion to dismiss under Rule 12(b)(6) for failure to state a claim, except that it is filed after the answer is filed. Kortlander v. Cornell, 816 F. Supp. 2d 982, 988 (D. Mont. 2011). So the Court must "'inquire whether the complaint's factual allegations, together with all reasonable inferences, state a plausible claim for relief.'" Id. (quoting Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637
F.3d 1047, 1055 n.4 (9th Cir. 2011)). A motion for judgment on the pleadings can be granted only if it appears that, on the admitted facts, the movant is clearly entitled to prevail as a matter of law. Mitchell v. Wheatland Memorial Healthcare, 2011 WL 5520932 at *2 (D. Mont. Nov. 14, 2011). When considering a motion for judgment on the pleadings, it is necessary to accept as true the non-moving party's factual allegations. Id.
A party is entitled to summary judgment if it can demonstrate "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Summary judgment is warranted where the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). Only disputes over facts that might affect the outcome of the lawsuit will preclude entry of summary judgment; factual disputes that are irrelevant or unnecessary to the outcome are not considered. Id. at 248.
I. The Plaintiffs' claims are subject to the Unfair Trade Practices Act.
One of the questions here is whether the plaintiffs' claims are subject to Montana's Unfair Trade Practices Act. Because they are, many of plaintiffs' substantive claims are barred.
Under the Unfair Trade Practices Act: 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. An insured may not bring an action for bad faith in connection with the handling of an insurance claim. Mont. Code Ann. § 33--18--242(3).
To avoid the preclusive effect of Section 33--18--242(3), the plaintiffs argue that not all of their claims involve "handling of an insurance claim." The plaintiffs set forth six counts against AMCO: negligent misrepresentation, violation of the Language Simplification Act, common law bad faith, "statutory bad faith,"*fn1 breach of contract, and fraud. They summarize their claims as follows in their brief:
"Plaintiffs' claims are based upon AMCO's issuance of a policy which it knew, or should have known, did not comply with Montana law and reliance upon provisions of that unlawful policy to disclaim coverage even when it knew, or should have known, coverage existed." (Plaintiffs' Response Br., doc. 37 at 7--8.)
Section 33--18--201 lists several examples of what constitutes "handling of insurance claims." See Thomas v. Northwestern Natl. Ins. Co., 973 P.2d 804, 809 (Mont. 1998). An insurer may not, for example, "misrepresent pertinent facts or insurance policy provisions relating to coverages at issue." Mont. Code Ann. § 33--18--201(1). More specifically, an insurer may not "misrepresent[ ] the benefits, advantages, conditions, or terms of any insurance policy." Id. at § 33--18--202(1). Such claims are the very conduct that the plaintiffs allege in their complaint.
The plaintiffs correctly argue that claims based on conduct that occurred prior to the handling of a claim are not subject to the Unfair Trade Practices Act. See Thomas, 973 P.2d at 809.
In this instance the complaint refers to conduct that occurred both before the claims-handling process as well as during it. The pre-claims-handling allegation refers to "AMCO's issuance of a policy which it knew, or should have known, did not comply with Montana law . . . ." The claims-handling conduct, on the other hand, is: "[AMCO's] reliance upon provisions of that unlawful policy to disclaim coverage even when it knew, or should have known, coverage existed."
While the complaint involves some pre-claim conduct, the claims are inextricably tied to AMCO's handling of the claim.*fn2 The plaintiffs did not suffer any damages or injury until after they made their claim and Amco arguably denied it through the reservation letter and the declaratory judgment complaint. In other words, the pre-claim conduct did not cause any damage independent of AMCO's handling of the claim.
Since all of the plaintiffs claims depend, at least in part, on AMCO's conduct in handling the plaintiffs' claim, they are subject to the Unfair Trade Practices Act.
II. Motion for Judgment on the Pleadings
AMCO moves for judgment on the pleadings as to the plaintiffs' claims for misrepresentation, violations of the Language Simplification Act, common law bad faith, fraud, and punitive damages.
A. Misrepresentation claim
The plaintiffs included a "misrepresentation" claim in their complaint and allege the following:
AMCO unreasonably denied insurance coverage under the policy to Plaintiffs regarding a claim relating to a discharge and release of fuel . . . Among other things, AMCO stated there was no coverage under the claim and that coverage was precluded by exclusions in the policy. (Complaint, doc. 1 at ¶ 7.) AMCO argues that the plaintiffs' misrepresentation claim should be dismissed because it is barred under Montana's Unfair Trade Practices Act. The Act provides:
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.
Mont. Code. § 33--18--242(3).
Whether a negligent misrepresentation claim is barred under this statute is a question of first impression. According to AMCO, since "misrepresentation" is not listed in the statute, the plaintiffs cannot bring that claim. The plaintiffs counter that the misrepresentation claim is cognizable because a misrepresentation claim is the same as a fraud claim under Montana law and fraud claims are expressly allowed under the Act.
The complaint does not indicate whether the misrepresentation claim is based on negligent misrepresentation or intentional representation, so it is necessary to examine both in order to resolve the unresolved question of first impression.
1. Negligent misrepresentation is not fraud
Negligent misrepresentation has six elements:
1. the defendant made a representation as to a past or existing material fact;
2. the representation must have been untrue;
3. regardless of its actual belief, the defendant must have made the representation without any reasonable ground for believing it to be true;
4. the representation must have been made with the intent to induce the plaintiff to rely on it;
5. the plaintiff must have been unaware of the falsity of the representation; it must have acted in reliance upon the truth of the representation, and it must have been ...