Estate of Hill v. Allstate Ins. Co.

• Decision Date: 13 December 2004
• Docket Number: No. CIV. 04-RB-0865(CBS).,CIV. 04-RB-0865(CBS).
• Citation: 354 F.Supp.2d 1192
• Parties: ESTATE of April HILL, Scott Hill, personal representative, Scott Hill, as Conservator of the Estate of Katelyn Hill, and Scott Hill, individually, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Liz Marchand, Merastar Insurance Company, and Prudential Insurance Company of America, Defendants.
• Court: U.S. District Court — District of Colorado

354 F.Supp.2d 1192

ESTATE of April HILL, Scott Hill, personal representative, Scott Hill, as Conservator of the Estate of Katelyn Hill, and Scott Hill, individually, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Liz Marchand, Merastar Insurance Company, and Prudential Insurance Company of America, Defendants.

No. CIV. 04-RB-0865(CBS).

United States District Court, D. Colorado.

December 13, 2004.

COPYRIGHT MATERIAL OMITTED

Kenneth Alan Senn, Titusville, FL, for plaintiffs.

John M. Vaught, Terence M. Ridley, Michael D. Alper, Wheeler Trigg Kennedy LLP, Denver, CO, for defendants Allstate Ins. Co., Liz Marchand.

Michael K. Alston, Esq., Chattanooga, TN.

Alan E. Popkin, David W. Sobelman, Husch & Eppenberger, LLC, St. Louis, MO, Gregory Scot Tamkin, Marian Elizabeth Lokey, Dorsey & Whitney, LLP, Denver, CO, Michael K. Alston, Husch & Eppenberger, LLC, Chattanooga, TN, for defendant Merastar Ins. Co.

Clifton J. Latiolais, Jr., Campbell, Latiolais & Ruebel, PC, Denver, CO, for Prudential Ins. Co. of America.

ORDER DENYING PLAINTIFFS' MOTION TO REMAND AND GRANTING DEFENDANTS' MOTION TO DISMISS

BLACKBURN, District Judge.

The matters before me are (1) Plaintiffs' Motion Pursuant to 28 U.S.C. § 1447(c) for Remand to State Court [# 18], filed May 28, 2004; and (2) Defendants Allstate Insurance Company and Liz Marchand's Amended Motion to Dismiss Plaintiffs' First Amended Complaint [# 49], filed October 4, 2004. I putatively have jurisdiction over this matter pursuant to 28 U.S.C. § 1332(a) (diversity of citizenship). I deny the motion to remand and grant the motion to dismiss.

I. FACTUAL AND PROCEDURAL BACKGROUND

This case implicates the personal injury protection ("PIP") provisions of the now abrogated Colorado Auto Accident Reparations Act, commonly known as the "No-Fault Act," part 7 of article 4 of title 10, C.R.S. (repealed by Laws 1997, H.B. 97-1209, § 8, as amended by Laws 2001, ch. 165, § 6 & Laws 2002, ch. 189, § 1, effective July 1, 2003). Under the No-Fault Act, automobile insurance policies issued in this state must contain coverage for certain types of risks. Specifically, the statute requires policies to provide

Compensation without regard to fault, up to a limit of fifty thousand dollars per person for any one accident, for payment of all reasonable and necessary medical expenses for medical... services, and nonmedical remedial care and treatment rendered in the accident for bodily injury arising out of the use or operation of a motor vehicle; ..."

§ 10-4-706(1)(b), C.R.S. This is the minimum PIP benefit that must be included in every policy. In addition, an insured may purchase optional enhanced PIP coverage for a higher premium. Thompson v. Budget Rent-A-Car Systems, Inc., 940 P.2d 987, 990 (Colo.App.1996). In this regard, the Act requires that

Every insurer shall offer for inclusion in a complying policy, in addition to the coverages in section 10-4-706, at the option of the named insured:

(I) Compensation of all expenses of the type described in section 10-4-706(1)(b) without dollar or time limitations; or

(II) Compensation of all expenses of the type described in section 10-4-706(1)(b) without dollar or time limitations and payment of benefits equivalent to eighty-five percent of loss of gross income per week from work the injured person would have performed had such injured person not been injured during the period commencing on the day after the date of the accident without dollar or time limitations.

§ 10-4-710(2)(a), C.R.S. When this optional coverage is not offered to the insured, "additional coverage in conformity with the required offer is incorporated into the agreement by operation of law." Thompson, 940 P.2d at 990.

On June 25, 2002, plaintiff Scott Hill's wife, April, was killed and his minor daughter, Katelyn, permanently disabled in a car accident. (First Am. Compl. at 1-2, ¶¶ 1 & 3.) At the time of the accident April was insured under a policy issued by defendant Allstate Insurance Company ("Allstate"), and sold by Allstate's agent, defendant Liz Marchand ("Marchand"), to April and her former husband, John Paul (collectively, "the Pauls"). (Id. at 4, ¶ 9; see also Def. Motion to Dismiss App., Exh. 1.) Plaintiffs claim Allstate and Marchand failed to inform the Pauls of the availability of enhanced PIP benefits. (First Am. Compl. at 4-5, ¶¶ 11-12.) They therefore filed suit in Colorado state district court, seeking reformation of the policy and alleging claims against Allstate for breach of contract and bad faith, as well as against Marchand for breach of contract, tortious interference with contract and prospective business advantage, negligence, negligent misrepresentation, and breach of fiduciary duty.¹

Defendants removed the case to federal district court, contending the Marchand had been fraudulently joined solely for the purpose of defeating federal diversity jurisdiction. While plaintiffs' motion to remand was still pending, Allstate and Marchand filed a motion to dismiss under Rule 12(b)(6).

II. MOTION TO REMAND

As Marchand is a Colorado resident, her presence in this lawsuit destroys federal diversity jurisdiction. Defendants, however, claim that Marchand was fraudulently joined solely to defeat removal to the federal court. Plaintiffs argue that Marchand's joinder was not fraudulent because they have asserted viable claims against her. They therefore move to remand the case to the Colorado state district court.

To prove fraudulent joinder, the removing party must show either that there is no-possibility that the plaintiff will be able to establish a cause of action against the non-diverse defendant or outright fraud in the pleading of jurisdictional facts. Hale v. MasterSoft International Pty., Ltd., 93 F.Supp.2d 1108, 1113 (D.Colo.2000); Frontier Airlines, Inc. v. United Air Lines, Inc., 758 F.Supp. 1399, 1404 (D.Colo.1989). The burden of proving fraudulent joinder is extremely heavy. Hale, 93 F.Supp.2d at 1113; Board of County Commissioners of County of Mesa v. Atlantic Fidelity, Inc., 930 F.Supp. 499, 500 (D.Colo.1996). The removing party must "prove the non-liability of the [non-diverse] defendant as a matter of fact or law." Blackwood v. Thomas, 855 F.Supp. 1205, 1207 (D.Colo.1994). "If there is even a possibility that the state court would find that the complaint states a cause of action against the resident defendant, the federal court must find that the joinder was proper and remand the case to state court." Frontier Airlines, 758 F.Supp. at 1404. I may look to evidence outside the pleadings in making this determination, although I may not conduct a full-scale evidentiary hearing. Hale, 93 F.Supp.2d at 1113; Blackwood, 855 F.Supp. at 1207. Rather, I must view the facts in the light most favorable to the non-removing party and resolve all disputed questions of fact and uncertain legal issues in its favor. Frontier Airlines, 758 F.Supp. at 1405.

Even under this stringent standard, I find that none of plaintiffs' causes of action asserts a viable claim for relief against Marchand. All plaintiffs' claims emanate from their contention that Marchand, despite her agreement to procure an automobile insurance policy for the Pauls that complied with Colorado law, failed to advise them of the availability of enhanced PIP benefits. (Id. at 5, ¶ 14 & at 13, ¶ 59.) Under Colorado law, "an insurance broker or agent who agrees to obtain a particular form of insurance coverage for the person seeking such insurance has a legal duty to obtain such coverage or to notify the person of his failure or inability to do so." Bayly, Martin & Fay, Inc. v. Pete's Satire, Inc., 739 P.2d 239, 243 (Colo.1987); see also Golden Rule Insurance Corp. v. Greenfield, 786 F.Supp. 914, 916 (D.Colo.1992); Terry v. Avemco Insurance Co., 663 F.Supp. 39, 41-42 (D.Colo.1987). An agent who fails to do so may be liable either for breach of contract, see Mayhew v. Glazier, 68 Colo. 350, 189 P. 843, 844-46 (1920), or negligence, see Terry, 663 F.Supp. at 41-42; Bayly, Martin & Fay, 739 P.2d at 242-43.

Although such a cause of action exists under Colorado law, the allegations of plaintiffs' complaint are insufficient to bring their claims within its scope. Pursuant to these precedents, an agent may be liable for failure to procure an insurance contract

not only when there is a failure to obtain insurance coverage on an express order from the insured, but also where the agent has simply falsely informed the insured that coverage was obtained where it in fact was not, or advised the insured that coverage would be reinstated after its cancellation, when it was not, if, in their prior dealings, the agent customarily took care of a customer's insurance needs without consulting the insured and without further express orders from the insured, but the agent failed to do so in a particular instance, or where the type of coverage or the amount procured was less than that desired by the insured.

4 COUCH ON INSURANCE § 46:46 (3rd ed.) (footnotes omitted). On the other hand, "[a]bsent some allegation that an insurance agent did something to contribute to a lack of coverage or denial by an insurer, the agent will not be held liable simply because it exists as an agent." Id. Stated differently, "[t]he general duty of the insurer's agent to the insured is to refrain from affirmative fraud, not to watch out for all rights of the insured and inform the latter of them. Absent a special relationship between the insured and the insurer's agent, an insurer's agent has no duty to affirmatively advise or warn his or her customer of provisions contained in an insurance policy, ..." Id., § 55:5 (footnotes omitted); see also Montano v. Allstate Indemnity, 2000 WL 525592 at *2 (10th Cir. Apr.14, 2000) (under similar provision of New Mexico law, agent does not have general duty to provide policy advice to insured).

Thus, in each of the cases recognizing the duty plaintiffs seek to impose on Marchand, the insurance...