Grasshopper Natural Med., LLC v. Hartford Cas. Ins. Co.

• Decision Date: 07 July 2016
• Docket Number: No. CIV 15-0338 JB/CEG,CIV 15-0338 JB/CEG
• Parties: GRASSHOPPER NATURAL MEDICINE, LLC, and BRANDON TAYLOR, individually, Plaintiffs, v. THE HARTFORD CASUALTY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of New Mexico

GRASSHOPPER NATURAL MEDICINE, LLC,
and BRANDON TAYLOR, individually, Plaintiffs,
v.
THE HARTFORD CASUALTY INSURANCE COMPANY, Defendant.

No. CIV 15-0338 JB/CEG

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

July 7, 2016

MEMORANDUM OPINION¹

THIS MATTER comes before the Court on Hartford's Motion to Dismiss Counts V and VI of Plaintiffs' Amended Complaint, filed April 30, 2015 (Doc. 4)("Motion"). The Court held a hearing on August 18, 2015. The primary issues are: (i) whether New Mexico recognizes an independent cause of action, apart from bad faith, for an insurer's "breach of fiduciary duty" in the insurance context; (ii) whether, if New Mexico recognizes such a cause of action, Plaintiffs Grasshopper Natural Medicine, LLC and Brandon Taylor allege sufficient factual allegations to establish a fiduciary duty; and (iii) whether the Court should dismiss the Plaintiffs' negligence and professional negligence claim (Count VI), because New Mexico does not recognize a cause of action for negligence or professional negligence against an insurance company. The Court will grant the Motion. First, the Court has already denied the Plaintiffs' Motion to Remand, so the Plaintiffs' request that the Court refrain from deciding the Motion until it determines whether

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it retains subject-matter jurisdiction is moot. Second, because The Hartford removed this case to federal court, the Court must apply Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)(collectively, "Iqbal/Twombly")'s federal pleading standards -- rather than New Mexico state-law pleading standards -- to the Complaint. Further, the Court will deny the Plaintiffs' request to amend their Complaint at this time. That denial does not preclude them, however, from filing a motion asking the Court for leave to amend their Complaint at a future date, although the Court concludes that amendment would likely be futile. Third, while the Court concludes that under New Mexico law, the relationship between insurer and insured imposes a fiduciary obligation on the insurer to deal with the insured in good faith in matters pertaining to performance of an insurance contract, no cause of action, independent of the action for bad faith, exists for breach of this duty. Accordingly, the Court will dismiss the Plaintiffs' breach-of-fiduciary-duty claim (Count V). Finally, the Court concludes that New Mexico does not recognize a cause of action for negligence or professional negligence against an insurance company. The Court will therefore dismiss the Plaintiffs' negligence and professional negligence claim (Count VI).

FACTUAL BACKGROUND

The Court takes its facts from the First Amended Complaint for Declaratory Judgment, Insurance Bad Faith and Related Causes of Action, filed in state court March 13, 2015, filed in federal court April 23, 2015 (Doc. 1-1 at 29)("Complaint"), as it must at the motion-to-dismiss stage, see Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)("[F]or purposes of resolving a Rule 12(b)(6) motion, we accept as true all well-pled factual allegations in a complaint and view these allegations in the light most favorable to the plaintiff." (citing Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir. 2006)).

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1. The Parties.

"Plaintiff, Grasshopper Natural Medicine is a duly registered LLC,² doing business in Santa Fe County, New Mexico." Complaint ¶ 1, at 1. "Plaintiff Brandon Taylor is the owner of Grasshopper Natural Medicine, LLC[.]" Complaint ¶ 2, at 1. "Plaintiff, individually, is also the owner of the building where Grasshopper, is located." Complaint ¶ 3, at 1.

"Mr. Taylor is not a lawyer." Complaint ¶ 9, at 2. "The business relationship between Mr. Taylor individually and Grasshopper is a formal one, due to the existence of a lease agreement between Mr. Taylor and Grasshopper for the lease of the building located at 1348 Pacheco St. Suite 206, Santa Fe, New Mexico." Complaint ¶ 4, at 2. "Upon information and belief, Defendant The Hartford Casualty Insurance Company ("Hartford"), is a foreign corporation, doing business in New Mexico." Complaint ¶ 5, at 2.

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2. The Events Giving Rise to the Litigation.

Grasshopper Medicine is a "Natural/Holistic medical provider that specializes in providing medical services such as therapeutic massage, Oriental Medicine, acupuncture, and herbal prescriptions, to its New Mexico patients." Complaint ¶ 8, at 2. "In 2009, Grasshopper had an insurance policy through Hartford (Policy No. 65 SBA NW9053)." Complaint ¶ 10, at 2. Grasshopper Medicine was the named insured for that policy. See Complaint ¶ 11, at 2.

"Mr. Taylor, individually, as Grasshopper's landlord with a valid lease agreement between himself and Grasshopper, should have also been covered as an insured under Grasshopper's general liability coverage." Complaint ¶ 12, at 2. "Upon information and belief, that policy included, inter alia, originally workers compensation insurance for Plaintiff." Complaint ¶ 13, at 2. "In 2009 Plaintiff, Grasshopper, advised Hartford that its mailing address had changed from 204 N. Guadalupe St. Suite C, Santa Fe NM 87501 to 1348 Pacheco St. Suite 206 Santa Fe, NM 87505." Complaint ¶ 14, at 3.

"On July 15, 2009, Hartford sent Grasshopper a 'POLICY CHANGE' endorsement acknowledging this new mailing address change." Complaint ¶ 15, at 3. "On July 15, 2010, Hartford sent Grasshopper a second 'POLICY CHANGE' endorsement acknowledging this mailing address change." Complaint ¶ 16, at 3. "In the 2010-2011 timeframe, Grasshopper paid premiums for, inter alia, worker's compensation coverage as part of the policy it purchased from Hartford." Complaint ¶ 17, at 3.

"Despite having twice acknowledged Grasshopper's correct mailing address, and unbeknownst to Plaintiffs, in 2011 Defendant sent Grasshopper's renewal papers for the workers' compensation coverage to the wrong address." Complaint ¶ 18, at 3. "Hartford never followed up with a phone call or letter to the correct mailing address for Plaintiffs advising of the

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need to renew the workers' compensation policy, prior to its lapse." Complaint ¶ 19, at 3. "Because of Hartford's negligence, Grasshopper's worker's compensation policy lapsed." Complaint ¶ 20, at 3.

"As part of the underwriting process, at all material times, Hartford had in its possession an 'audit form' in which Plaintiff Grasshopper disclosed that it had more than three (3) employees." Complaint ¶ 21, at 3. "Plaintiff was surprised when he received the cancellation letter f[ro]m Hartford so he called the insurance company and spoke with a Hartford Employee." Complaint ¶ 22, at 4.

Hartford's employee told Mr. Taylor that it was his fault the policy was cancelled because he failed to timely renew the policy, despite the fact that Hartford sent the renewal letter to the wrong address, and failed to timely send the renewal to the correct address, and failed to otherwise advise Mr. Taylor that the renewal was due.

Complaint ¶ 23, at 3.

Hartford told Mr. Taylor that he could renew his workers' compensation coverage but that he could only do so at an increased charge, and that Hartford would not provide coverage, retroactively, for the "gap" in coverage it had caused due to its failure to mail the renewal to the correct address.

Complaint ¶ 24, at 4.

At this time, Mr. Taylor told Hartford he was not satisfied with its position, or customer service and that it was his belief that he did not need workers' compensation coverage because Grasshopper did not have the requisite number of employees to be required to carry workers' compensation coverage under New Mexico law.

Complaint ¶ 25, at 4.

"Mr. Taylor's belief on this issue was incorrect." Complaint ¶ 26, at 4.

However, Defendant Hartford had in its possession an 'audit form' detailing the number of employees Grasshopper had, and despite the fact that Hartford had superior knowledge to Mr. Taylor on the issue of how many employees were needed to trigger the requirement to carry workers' compensation insurance,

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Defendant Hartford failed to tell Mr. Taylor that he needed such coverage to be in compliance with New Mexico law.

Complaint ¶ 26, at 4. "On December 10, 2013, Ms. Rose Gardner-Rael alleged she suffered a slip and fall accident on the Grasshopper premises." Complaint ¶ 27, at 5. "At that time, Ms. Rose-Gardner-Rael was an employee of Grasshopper." Complaint ¶ 28, at 5. "During the December 10, 2013, timeframe, Grasshopper had a business liability insurance policy with Defendant Hartford, Policy No. 65 SBA ZR3068." Complaint ¶ 29, at 5. "The general business liability coverage was provided pursuant to the Business Liability Coverage form SS008 0405." Complaint ¶ 29, at 5.

"Mr. Taylor and Grasshopper subsequently tendered the claim to Hartford." Complaint ¶ 30, at 5. "Hartford denied Mr. Taylor's claim on the basis that, inter alia, he individually was not an additional insured under the policy." Complaint ¶ 31, at 5. "Hartford denied Grasshopper's claim, inter alia, on the basis that it did not have workers' compensation coverage at the time of the policy, and therefore a workers' compensation exclusion on the general liability policy applied to bar coverage." Complaint ¶ 32, at 5.

"The Hartford did this despite the fact that the reason Grasshopper did not have such coverage was due to the Hartford's negligence, as described above." Complaint ¶ 33, at 5. "On June 26, 2014, Rose Gardner-Rael filed a lawsuit in state court, against Grasshopper and Mr. Taylor for her alleged slip and fall accident." Complaint ¶ 34, at 5. "During at least one telephonic phone call with Hartford regarding Ms. Rose Gardner-Rael's claims, Mr. Taylor specifically asked the Hartford not to assist the Plaintiff in anyway with regard to her claims against Ms. Taylor and/or his company Grasshopper." Complaint ¶ 28, at 5.

"In other words, Mr. Taylor specifically asked the Hartford not to help Plaintiff sue him better."...