Bills v. Am. Family Mut. Ins. Co.

Decision Date17 August 2021
Docket NumberC21-33-LTS-KEM
Citation555 F.Supp.3d 618
Parties Michael F. BILLS and Sandra K. Bills, Plaintiffs, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, S.I., Defendant.
CourtU.S. District Court — Northern District of Iowa

John George Daufeldt, John C. Wagner, John C. Wagner Law Office PC, Amana, IA, for Plaintiffs.

Benjamin M. Weston, Alexandra Galbraith, Lederer Weston & Craig PLC, West Des Moines, IA, James P. Craig, Lederer Weston & Craig PLC, Cedar Rapids, IA, for Defendant.


Leonard T. Strand, Chief Judge


This matter is before me on a partial motion (Doc. 23) to dismiss filed by defendant American Family Mutual Insurance Company, S.I. (American Family), which seeks dismissal of Counts II and III of the amended complaint (Doc. 21).1 Plaintiffs Michael Bills and Sandra Bills (the Bills) have filed a resistance (Doc. 30) and American Family has filed a reply (Doc. 33). Oral argument is not necessary. See Local Rule 7(c).


The Federal Rules of Civil Procedure authorize a pre-answer motion to dismiss for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). The Supreme Court has provided the following guidance in considering whether a pleading properly states a claim:

Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." As the Court held in [ Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 127 S. Ct. 1955, 167 L.Ed.2d 929 (2007) ], the pleading standard Rule 8 announces does not require "detailed factual allegations," but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation. Id. , at 555, 127 S. Ct. 1955 (citing Papasan v. Allain , 478 U.S. 265, 286, 106 S. Ct. 2932, 92 L.Ed.2d 209 (1986) ). A pleading that offers "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." 550 U.S. at 555, 127 S. Ct. 1955. Nor does a complaint suffice if it tenders "naked assertion[s]" devoid of "further factual enhancement." Id. , at 557, 127 S. Ct. 1955.
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Id. , at 570, 127 S. Ct. 1955. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. , at 556, 127 S. Ct. 1955. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Ibid. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of ‘entitlement to relief.’ " Id. at 557, 127 S. Ct. 1955 (brackets omitted).

Ashcroft v. Iqbal , 556 U.S. 662, 677-78, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

Courts assess "plausibility" by " ‘draw[ing] on [their own] judicial experience and common sense.’ " Whitney v. Guys, Inc. , 700 F.3d 1118, 1128 (8th Cir. 2012) (quoting Iqbal , 556 U.S. at 679, 129 S.Ct. 1937 ). Also, courts " ‘review the plausibility of the plaintiff's claim as a whole, not the plausibility of each individual allegation.’ " Id. (quoting Zoltek Corp. v. Structural Polymer Grp. , 592 F.3d 893, 896 n.4 (8th Cir. 2010) ). While factual "plausibility" is typically the focus of a Rule 12(b)(6) motion to dismiss, federal courts may dismiss a claim that lacks a cognizable legal theory. See, e.g., Somers v. Apple, Inc. , 729 F.3d 953, 959 (9th Cir. 2013) ; Ball v. Famiglio , 726 F.3d 448, 469 (3d Cir. 2013) ; Commonwealth Prop. Advocates, L.L.C. v. Mortg. Elec. Registration Sys., Inc. , 680 F.3d 1194, 1202 (10th Cir. 2011) ; accord Target Training Intern., Ltd. v. Lee , 1 F. Supp. 3d 927 (N.D. Iowa 2014).

In considering a Rule 12(b)(6) motion to dismiss, ordinarily the court "cannot consider matters outside the pleadings without converting the motion into a motion for summary judgment." McMahon v. Transamerica Life Ins. , No. C17-149-LTS, 2018 WL 3381406, at *2 n.2 (N.D. Iowa July 11, 2018) ; see Fed. R. Civ. P. 12(b)(6). On the other hand, when a copy of a "written instrument" is attached to a pleading, it is considered "a part of the pleading for all purposes," pursuant to Federal Rule of Civil Procedure 10(c). Thus, when the pleadings necessarily embrace certain documents, I may consider those documents without turning a motion to dismiss into a motion for summary judgment. Id.

When a complaint does not state a claim for relief that is plausible on its face, the court must consider whether it is appropriate to grant the pleader an opportunity to replead. The rules of procedure permit a party to respond to a motion to dismiss by amending the challenged pleading "as a matter of course" within 21 days. See Fed. R. Civ. P. 15(a)(1)(B). Thus, when a motion to dismiss highlights deficiencies in a pleading that can be cured by amendment, the pleader has an automatic opportunity to do so. When the pleader fails to take advantage of this opportunity, the question of whether to permit an amendment depends on considerations that include:

whether the pleader chose to stand on its original pleadings in the face of a motion to dismiss that identified the very deficiency upon which the court dismissed the complaint; reluctance to allow a pleader to change legal theories after a prior dismissal; whether the post-dismissal amendment suffers from the same legal or other deficiencies as the dismissed pleading; and whether the post-dismissal amendment is otherwise futile.

Meighan v. TransGuard Ins. Co. of Am. , 978 F. Supp. 2d 974, 982 (N.D. Iowa 2013).


The amended complaint asserts four causes of action:

Count I – Breach of Contract
Count II - Bad Faith Failure to Pay Benefits
Count III – Punitive Damages
Count IV – Vexatious Refusal to Pay Claim ( Mo. Ann. Stat. § 375.420 )

Doc. 21. American Family moves to dismiss Counts II and III. It argues that I must apply Iowa's choice of law rules for contracts and that, under that test, Missouri law applies. American Family argues that Missouri law does not recognize a claim for first party bad faith by an insured against an insurer. And without a bad faith claim, American Family argues that punitive damages are not available. In the alternative, American Family argues that the Bills’ allegations fail to state a claim for punitive damages.

The Bills argue that I must apply Iowa's choice of law rules for torts and that, under that test, Iowa law applies. They contend that under Iowa law, Counts II and III state viable claims. In response, American Family argues that even under Iowa's choice of law rules for torts, Missouri law applies.

"Federal courts sitting in diversity apply the choice-of-law rules of the forum state." Cicle v. Chase Bank USA , 583 F.3d 549, 553 (8th Cir. 2009) (citing Prudential Ins. Co. of Am. v. Kamrath , 475 F.3d 920, 924 (8th Cir. 2007) ). "Before applying the forum state's choice-of-law rules, however, a trial court must first determine whether a conflict exists." Prudential Ins. Co. , 475 F.3d at 924. American Family argues there is a conflict between Missouri and Iowa law regarding recognition of a first party claim for bad faith denial of insurance benefits. Missouri law does not recognize such a claim. See Overcast v. Billings Mutual Ins. Co. , 11 S.W.3d 62, 69 (Mo. 2000) (en banc) ("an insurance company's denial of coverage itself is actionable only as a breach of contract and, where appropriate, a claim of vexatious refusal to pay"); Harris v. Auto-Owners Ins. Co. , Case No. 21-cv-03159, 2021 WL 2954407, at *2-3 (W.D. Mo. July 14, 2021) (dismissing plaintiff's claims of bad faith and punitive damages under Missouri law). Iowa law does recognize such a claim. See Rodda v. Vermeer Mfg. , 734 N.W.2d 480, 483 (Iowa 2007) ("Iowa law recognizes a common-law cause of action against an insurer for bad-faith denial or delay of insurance benefits."). I agree with American Family that there is a conflict between Missouri and Iowa law. As such, I will apply the forum state's (Iowa's) choice of law rules.

The parties dispute whether I should apply Iowa's choice of law rules for contracts or Iowa's choice of law rules for torts. The Bills argue that bad faith failure to pay is a tort-based cause of action. American Family argues that a bad faith claim is a claim "on the policy" such that the choice of law rules for contracts apply. See Stahl v. Preston Mut. Ins. Ass'n , 517 N.W.2d 201, 204 (Iowa 1994) ("Stahl's cause of action for bad faith is fundamentally a claim on the policy."). As noted above, however, American Family also argues that even under a tort-based approach, Missouri law applies.

A first party bad faith claim is a tort under Iowa law. See Dolan v. Aid Ins. Co. , 431 N.W.2d 790, 794 (Iowa 1988) ("We conclude it is appropriate to recognize the first-party bad faith tort to provide the insured an adequate remedy for an insurer's wrongful conduct."). In Thornton v. Amer. Interstate Ins. Co. , 897 N.W.2d 445 (Iowa 2017) ( Thornton I ), the Iowa Supreme Court stated:

In [ Dolan ], we recognized a common law action in tort for bad faith against a first-party insurer because "traditional damages for breach of contract will not always adequately compensate an insured for an insurer's bad faith conduct." ... We concluded allowing a remedy in tort was "justified by the nature of the contractual relationship between the insurer and insured."

Id. at 462 (citations omitted). Because first-party bad faith is a tort claim under Iowa law, punitive damages are available (as the Bills seek in Count III). See Dolan , 431 N.W.2d at 794 ; see also Thornton v. Amer. Interstate Ins. Co. , 940 N.W.2d 1, 42 (Iowa 2020) ( Thornton II ) (...

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