Fed. Ins. Co. v. Indeck Power Equip. Co.

• Decision Date: 27 September 2019
• Docket Number: Case No. 5:15-cv-00491-D
• Parties: FEDERAL INSURANCE COMPANY, Plaintiff/Counter-Defendant, v. INDECK POWER EQUIPMENT COMPANY, et al., Defendants/Counter-Plaintiffs.
• Court: U.S. District Court — Western District of Oklahoma

FEDERAL INSURANCE COMPANY, Plaintiff/Counter-Defendant, v. INDECK POWER EQUIPMENT COMPANY, et al., Defendants/Counter-Plaintiffs.

Case No. 5:15-cv-00491-D

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA

September 27, 2019

ORDER

Counter-Defendant Federal Insurance Company ("Federal") has filed a Motion to Dismiss [Doc. No. 197] seeking the partial dismissal of Indeck Power Equipment Company's Second Amended Counterclaim [Doc No. 195]. Counter-Plaintiff Indeck Power Equipment Company ("Indeck") has filed a response in opposition [Doc. No. 207], to which Federal has replied [Doc. No. 216]. The matter has been fully briefed and is at issue.

BACKGROUND

In October 2003, Indeck contracted with the City of Altus and the Altus Municipal Authority (collectively, "Altus Plaintiffs"). Under the terms of that agreement, Indeck was to install portions of a water treatment system. Federal's Original Complaint [Doc. No. 1] at 2-3, ¶ 11. Disputes arose, and, pursuant to that contract, Altus Plaintiffs filed a lawsuit ("Altus") against Indeck on November 5, 2013. By that time, Federal had issued thirteen insurance policies to Indeck, all effective continuously from December 1, 2002 to December 1, 2015 ("Federal Policies"). Indeck's Second Amended Counterclaim at 3, ¶ 4. In the Federal Policies, Federal allegedly agreed to defend Indeck in Altus, subject to a reservation of rights, and agreed that Indeck could rely on independent counsel at Federal's expense. Id. at 4, ¶ 20.

Because of certain developments surrounding Indeck's use of independent counsel in Altus, Federal now brings the present action. Federal originally claimed to have no duty to defend or indemnify Indeck and sought to withdraw from Indeck's defense in Altus, claiming that Altus Plaintiffs do not seek any damages covered by the Federal Policies. Id. at 7, ¶¶ 34-36. Indeck has since filed and twice amended a counterclaim. Second Amended Counterclaim, Doc. No. 195.

At issue here are Counts I-VI of Indeck's Second Amended Counterclaim. Count I alleges a breach of contract. Id. at 25. Count II is a voluntary undertaking claim. Id. at 27. Count III alleges violations of § 155 of the Illinois Insurance Code. Id. at 29. Count IV alleges breach of the duty of good faith and fair dealing, under Oklahoma law. Id. at 33. Count V is a claim for violations of the Illinois Consumer Fraud and Deceptive Business Practices Act ("Consumer Fraud Act"). Id. at 34. Count VI is a claim for prejudgment interest. Id. at 39. Facts relevant to each count will be detailed in corresponding sections below.

STANDARD OF DECISION

To survive a motion to dismiss under Rule 12(b)(6), "a complaint 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) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiffpleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. The "plausibility standard" announced in Twombly and Iqbal is not a "heightened standard" of pleading, but rather a "refined standard." Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012) (citing Kansas Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011)). Under the "refined standard," plausibility refers "to the scope of the allegations in the complaint: if they are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs have not nudged their claims across the line from conceivable to plausible." Khalik, 671 F.3d at 1191; see also Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008). Further, the Tenth Circuit has noted that "[t]he nature and specificity of the allegations required to state a plausible claim will vary based on context." Khalik, 671 F.3d at 1191.

I. A ruling on choice-of-law issues at this stage of the litigation remains premature.

Federal is alleged to have tortiously breached the duty of good faith and fair dealing. Second Amended Counterclaim at 33. While Indeck brings these claims in Count IV under Oklahoma law, Federal maintains that Illinois law should govern any bad faith allegations. Motion at 4. Under Illinois law—Federal asserts—Indeck has failed to state a claim. Id. Federal once before made this argument to the Court in a motion to dismiss. See Federal's Motion to Dismiss Count III of Indeck's First Amended Counterclaim, Doc. No. 88. In denying Federal's earlier Motion, the Court concluded that "at this stage of litigation, it would be inappropriate to issue a ruling . . . because doing so would require what applicableprecedent prohibits, which is to weigh the choice-of-law evidence submitted by the parties." Order, Doc. No. 107. The Court explicitly stated that such a ruling would be "improper on a motion brought under Rule 12(b), and the issue would be better resolved through summary judgment." Id. at 3 (citing Jones v. Lattimer, 29 F. Supp. 3d 5, 10 n.3 (D.D.C. 2014)).

The Court adheres to its previous ruling. While certainly the litigation has progressed, discovery is still ongoing. See Scheduling Order, Doc. No. 222. And applicable precedent influencing the Court's logic in its previous Order holds true. Any choice-of-law issues will be better resolved at the summary judgment stage.

The Court declines to reconsider its previous Order and decide any choice-of-law issues prematurely. All parties agree Illinois substantive law controls the analysis of the remaining claims. Second Amended Counterclaim at 4.

II. Indeck's voluntary undertaking claim is dismissed without prejudice, given that Federal had a duty to defend.

Federal moves the Court to dismiss Count II of Indeck's Second Amended Counterclaim, a voluntary undertaking claim. Indeck agrees dismissal of Count II is proper on different grounds. Indeck's Response, Doc. No. 207, at 28. Indeck pleaded the voluntary undertaking claim in the alternative, should the Court find Federal owed no duty to defend. See Indeck's Response, Doc. No. 207 at 28. The Court, in a previous Order—issued after Indeck filed its Second Amended Counterclaim—determined Federal's duty to defend was triggered. Order, Doc. No. 190, at 12.

Therefore, both parties submit that the voluntary undertaking claim should be dismissed. Federal's Reply at 3 n.3. The Court agrees and dismisses Count II, without prejudice.

III. Count V brought under the Consumer Fraud Act is not preempted and is stated with sufficient specificity.

a) Claims raised as Consumer Fraud Act violations are not preempted by §155 of the Illinois Insurance Code.

Federal asserts Count V¹ of Indeck's Second Amended Counterclaim should be dismissed. Motion at 12. Count V claims Federal's actions violated the Consumer Fraud Act. Doc. No. 195 at 35, ¶ 166-78. In support, Indeck contends that Federal secretly contacted Indeck's independent counsel to obtain a tactical advantage in litigation. Id. at 35, ¶ 170. Federal allegedly coerced Indeck's independent counsel by threatening to withhold $20 million in revenue. Id. Indeck claims that Federal also sought to improperly condition a mutually-beneficial waiver of rights, so that Federal could pursue bad faith claims against Indeck. Id. Federal is also alleged to have attempted to improperly bias expert witness testimony. Id. Federal moves to dismiss Count V claiming the Consumer Fraud Act is preempted by § 155 of the Illinois Insurance Code. Federal further claims Count V fails because Indeck does not allege actual damages with particularity. Motion at 12.

The Consumer Fraud Act creates a cause of action for a person who suffers damages resulting from its violation. 815 Ill. Comp. Stat. Ann. 505/10a. A defendant violates the Act when she uses or employs "any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact" with the intent that others rely on the fraud, though no actual reliance is necessary. § 2. "Merchandise" includes services, § 1(e), and "[t]he sale of insurance is clearly a service and insureds are thus consumers and within the protection of the Consumer Fraud Act." Leona's Pizzeria, Inc. v. Nw. Nat. Cas. Co., 203 F. Supp. 2d 930, 933 (N.D. Ill. 2002) (quoting Fox v. Indus. Cas. Ins. Co., 98 Ill.App.3d 543, 54 Ill.Dec. 89, 424 N.E.2d 839, 842 (1981)). To state a claim under the Act, a plaintiff must allege that the defendant engaged in (1) a deceptive act or practice (2) during the course of conduct involving commerce (2) with the intent that plaintiff rely on the deception. See Burress-Taylor v. Am. Sec. Ins. Co., 980 N.E.2d 679, 688-89 (Ill. App. 2012).

Section 155 of the Illinois Insurance Code "provides an extracontractual remedy to policyholders whose insurer's refusal to recognize liability and pay a claim is vexatious and unreasonable." Cramer v. Ins. Exch. Agency, 174 Ill.2d 513, 221 Ill.Dec. 473, 675 N.E.2d 897, 900 (1996). Under Illinois law, a defendant's conduct can both breach a contract and simultaneously constitute a separate and independent tort. Id. at 917 (citing Kelsay v. Motorola, Inc., 74 Ill.2d 172, 187, 23 Ill.Dec. 559, 384 N.E.2d 353 (1978)); see also Leona's Pizzeria, 203 F. Supp. 2d at 934 ("Nonetheless, § 155 leaves the door open for claims that truly sound in tort, particularly fraud."). "Mere allegations of bad faith or unreasonable and vexatious conduct, without more, however, do not constitute such a tort."Cramer, 675 N.E.2d at 917. Courts must look past the legal theory asserted and examine the conduct forming the basis for the claim. Id. at 904. "[A]ny count alleging nothing more than the conduct proscribed by section 155 is preempted by the statute." Mazur v. Hunt, 227 Ill.App.3d 785, 169 Ill.Dec. 848, 592 N.E.2d 335, 340 (1992) (cited favorably in Cramer, 675 N.E.2d at 905).

Federal argues that...