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Allied World Specialty Insurance Co. v. The City of Ferguson

United States District Court, E.D. Missouri, Eastern Division

August 27, 2019

ALLIED WORLD SPECIALTY INSURANCE COMPANY, Plaintiff(s),
v.
THE CITY OF FERGUSON, MISSOURI, Defendant(s).

          MEMORANDUM AND ORDER

          STEPHEN R. CLARK UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on Plaintiff Allied World Specialty Insurance Company's Motion to Dismiss Defendant's Counterclaim [33]. The Court grants the motion.

         I. BACKGROUND

         On May 31, 2018, Plaintiff Allied World Specialty Insurance Company filed a complaint in this Court seeking a declaratory judgment that Allied World does not have a duty to defend or indemnify the City of Ferguson in the “Fee Refund Lawsuit” filed in the Circuit Court of St. Louis County. The plaintiffs in the Fee Refund Lawsuit allege Ferguson “charges a variety of illegal fees designed to profit the municipality at the expense of the general welfare.” ECF No. 32, ¶ 12. In its answer to Allied World's complaint, Ferguson asserted a counterclaim for vexatious refusal to pay pursuant to Missouri Revised Statute § 375.420. In response, Allied World filed the pending motion to dismiss asserting Ferguson's counterclaim fails to state a claim upon which relief may be granted.

         II. STANDARD

         Under Federal Rule of Civil Procedure (“FRCP”) 12(b)(6), a party may move to dismiss a claim for “failure to state a claim upon which relief can be granted.” The notice pleading standard of FRCP 8(a)(2) requires a party to give “a short and plain statement showing that the pleader is entitled to relief.” To meet this standard and to survive a FRCP 12(b)(6) motion to dismiss, “a [pleading] must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotations and citation omitted). This requirement of facial plausibility means the factual content of the party's allegations must “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Park Irmat Drug Corp. v. Express Scripts Holding Co., 911 F.3d 505, 512 (8th Cir. 2018) (quoting Iqbal, 556 U.S. at 678). The Court must grant all reasonable inferences in favor of the nonmoving party. Lustgraaf v. Behrens, 619 F.3d 867, 872-73 (8th Cir. 2010).

         If a claim fails to allege one of the elements necessary to recovery on a legal theory, that claim must be dismissed for failure to state a claim upon which relief can be granted. Crest Constr. II, Inc. v. Doe, 660 F.3d 346, 355 (8th Cir. 2011). Threadbare recitals of a cause of action, supported by mere conclusory statements, do not suffice. Iqbal, 556 U.S. at 678; Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007). Although courts must accept all factual allegations as true, courts do not take as true a legal conclusion couched as a factual allegation. Twombly, 550 U.S. at 555 (internal quotations and citation omitted); Iqbal, 556 U.S. at 677-78.

         III. DISCUSSION

         In its motion to dismiss, Allied World argues Ferguson did not plead a claim for breach of contract, which is a necessary predicate to a claim for vexatious refusal to pay. Allied World also claims Ferguson cannot assert a claim for breach of contract, even if allowed to amend its pleading. Additionally, Allied World asserts Ferguson's claim fails because a claim for vexatious refusal to pay is predicated on a first-party claim for insurance coverage, not a third-party claim at issue here. Lastly, Allied World contends Ferguson cannot assert a claim for bad faith failure to settle because Ferguson did not allege any damages, a demand for settlement, or facts as to Allied World's state of mind, all of which are necessary to establish a claim for bad faith failure to settle.

         A. Predicate Breach of Contract Claim

         Allied World argues Ferguson must plead a breach of contract claim along with a vexatious refusal to pay claim, that a vexatious refusal to pay claim cannot be a stand-alone claim. Missouri Revised Statute § 375.420 provides:

In any action against any insurance company to recover the amount of any loss under a policy of automobile, fire, cyclone, lightning, life, health, accident, employers' liability, burglary, theft, embezzlement, fidelity, indemnity, marine or other insurance except automobile liability insurance, if it appears from the evidence that such company has refused to pay such loss without reasonable cause or excuse, the court or jury may, in addition to the amount thereof and interest, allow the plaintiff damages not to exceed twenty percent of the first fifteen hundred dollars of the loss, and ten percent of the amount of the loss in excess of fifteen hundred dollars and a reasonable attorney's fee; and the court shall enter judgment for the aggregate sum found in the verdict.

         This statute enhances a breach of contract claim; a plaintiff may recover what the contract provides, and “the enhancements provided by the statute.” Overcast v. Billings Mut. Ins. Co., 11 S.W.3d 62, 68 (Mo. 2000). To establish a claim for vexatious refusal to pay, Ferguson must prove: (1) it has an insurance policy with Allied World; (2) Allied World refused to pay; and (3) Allied World's refusal was without reasonable cause or excuse. Dhyne v. State Farm Fire & Cas. Co., 188 S.W.3d 454, 457 (Mo. 2006); see also D.R. Sherry Constr., Ltd. v. Am. Family Mut. Ins. Co., 316 S.W.3d 899, 907 (Mo. 2010).

         To plead a claim for vexatious refusal to pay, a party must also plead a claim for breach of contract. The statute itself states, “in any action against any insurance company to recover the amount of any loss under a policy . . .” Mo. Rev. Stat. § 375.420; see also Aziz v. Allstate Ins. Co., 875 F.3d 865, 869 (8th Cir. 2017) (“Under Missouri law, a vexatious refusal is a derivative of a breach-of-contract claim.”); Thomas Farms, Ltd. v. Nat'l Union Fire Ins. Co. of Pittsburgh, No. 1:18CV00196 AGF, 2019 WL 460503 at *3 (E.D. Mo. Feb. 6, 2019) (“[A] claim for vexatious refusal to pay is necessarily predicated on a ...


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