Mostoller v. USAA Life Ins. Co.

• Docket Number: 1:22-cv-00687-JHR-SCY
• Decision Date: 29 August 2023
• Parties: LYNN MOSTOLLER, as Special Administrator of the Estate of Carlos Velazquez, Deceased, Plaintiff, v. USAA LIFE INSURANCE COMPANY, Defendant,
• Court: U.S. District Court — District of New Mexico

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LYNN MOSTOLLER, as Special Administrator of the Estate of Carlos Velazquez, Deceased, Plaintiff,
v.
USAA LIFE INSURANCE COMPANY, Defendant,

No. 1:22-cv-00687-JHR-SCY

United States District Court, D. New Mexico

August 29, 2023

MEMORANDUM OPINION AND ORDER

Jerry H. Ritter U.S. Magistrate Judge

THIS MATTER is before the Court on Defendant USAA Life Insurance Company's Motion to Dismiss Plaintiff's Original Complaint [Doc. 5] (“Motion”). Having considered the briefing and relevant law, the Court grants the Motion in part and denies it in part. Counts I, II, III, and IV are dismissed; Count V, “Negligent Misrepresentation,” is not.

I. INTRODUCTION

This case examines the duties insurers owe to decedents who bought life insurance in New Mexico. Typically, insurers must pay death benefits to the beneficiary named by the insured in the policy. Entitlement to those benefits, however, can be limited by policy language and state statutes. New Mexico imposes common-law duties on the insurer to act in good faith and deal fairly with the insured, but those duties do not override clear policy language. Businesses also have a common-law duty not to deceive others knowingly or recklessly in the course of business. Breaching these duties can make the insurer liable for breach of contract, breach of the duty of good faith and fair dealing, acting in bad faith, and negligent misrepresentation. So, if an insurer misrepresents to the representative of a deceased insured that

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the insured's estate will receive a death benefit, but the insured's estate is not actually entitled to that death benefit, what claims can the representative bring against the insurer?

In this case, only negligent misrepresentation. Mostoller, as representative of the estate of Carlos Velazquez, alleges that USAA breached each of the duties listed above by denying a claim for benefits and misrepresenting what benefits Carlos's estate was owed. But when her allegations are read alongside the contract Carlos signed, she alleges only that USAA obeyed the terms of the contract and made misrepresentations to her in the process. As pled, this is enough to let her proceed with her negligent misrepresentation claim, but no others. The Court thus grants the Motion in part and denies it in part.

II. FACTUAL AND PROCEDURAL BACKGROUND^[1]

In March 2004, Carlos and Marilyn Velazquez purchased a life insurance policy from USAA. [Doc. 5-1, p. 7].^[2] The policy had two parts - a primary policy insuring Carlos's life at $250,000.00, and a “rider” insuring Marilyn's for the same amount. See id. at 7, 9. The terms of the primary policy and the rider were similar, the main differences being which life was insured and who were the respective beneficiaries. See generally id. Each part named “primary” beneficiaries, first in line to receive the death benefit, and a “contingent” beneficiary, who would receive the death benefit if the primary beneficiaries died before the insured. See id. at 16, 20. The rider insuring Marilyn's life named Carlos and the couple's first son, Roberto, as primary

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beneficiaries, and Maria de la Luz Ramirez Lopez (“Ramirez”), Carlos's mother, as contingent beneficiary. Id. at 28. The rider specified that Marilyn's death benefit would be paid to her estate if no beneficiaries survived her. See id. Sometime later, Carlos and Marilyn had a second son, Adrian, who was not added as a beneficiary on the policy. [Doc. 1-1, p. 5]; see [Doc. 5-1, pp. 27-28].

In the early hours of December 25, 2019, Carlos murdered Marilyn, Roberto, and Adrian, then took his own life.^[3] [Doc. 1-1, p. 5]; [Doc. 18, p. 2]. The Velazquez family's bodies were found and identified by relatives later that day. Katy Barnitz, Vigil honors Rio Rancho mother, sons who died on Christmas Day, Albuquerque Journal (Jan. 6, 2020, 7:04 AM EST), https://plus.lexis.com/api/permalink/365ae4bc-41ba-4313-803c-e0fe94e06110/?context=1530671.

The process of marshaling the Velazquez estate began in 2020. Edwin Quinones was appointed personal representative of Marilyn's estate. See [Doc. 1-1, p. 5]. Quinones's lawyer contacted USAA and, in June, asked that no distributions be made related to the Velazquez estate until a court could determine rightful beneficiaries. Id. The next day, USAA responded with requests for documentation proving the deaths and stating that “[i]n the interim, any claim for proceeds will remain pending.” Id. In late August, Plaintiff Lynn Mostoller was appointed Special Administrator of Carlos's estate. Id. at 6. Mostoller began corresponding with USAA in September and, by mid-November, USAA confirmed that it received all documentation necessary to substantiate the deaths of the Velazquez family. Id. Meanwhile, unbeknownst to

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Mostoller, Ramirez filed a claim with USAA in October as contingent beneficiary to Marilyn's rider. Id. at 8; [Doc. 5, p. 3].

Surviving heirs and beneficiaries of the Velazquez estate began trying to settle their claims in December 2020. An unsuccessful mediation was first held December 8. [Doc. 1-1, p. 6]. On December 10, USAA told Mostoller that Carlos's death benefit from the primary policy would go to Carlos's estate and “represented” that Carlos's estate would also receive Marilyn's death benefit from the rider. Id. The same day, Mostoller told Quinones that Carlos's estate would receive Carlos's death benefit and, seemingly for the first time, about the existence of the rider insuring Marilyn.^[4] Id.

Money started changing hands in January 2021. On January 4, USAA paid Ramirez at least $250,000.00 in satisfaction of her claim as a contingent beneficiary to the rider. Id. at 8; [Doc. 5, p. 3]. Neither Ramirez nor USAA told Mostoller or Quinones about this payment. [Doc. 1-1, p. 8]. On January 7, beneficiaries to the Velazquez estate entered into a settlement agreement amongst one another under which Ramirez would receive $241,279.00, a portion of which would come from another life insurance policy the Velazquezes purchased from Prudential Life. Id. at 7. The agreement stated that all other assets, including Marilyn's death benefit under the USAA policy, were to be marshaled by Mostoller and distributed to Marilyn's parents. Id. In late February, Mostoller had the Prudential Life money wired to Ramirez as agreed. Id.

The conflict between Mostoller's plans and USAA's actions came to a head in March 2021. USAA sent Mostoller a claim form for Carlos's life insurance policy on March 9. Id. On

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March 15, Mostoller filled out the form and returned it with a cover letter asking about Marilyn's death benefit under the rider. Id. at 7-8. The next day, USAA told Mostoller that Marilyn's death benefit was paid to Ramirez because she was the contingent beneficiary and “admitted it had previously represented to Plaintiff Mostoller benefits would go to Decedent Carlos Velazquez's Estate.” Id. at 8. Over the next week, USAA informed Mostoller that it received Ramirez's claim in October 2020, settled the claim on January 4, 2021, and paid Ramirez the full value of Marilyn's death benefit plus interest. Id.

Mostoller sued on behalf of Carlos's estate in New Mexico state court in August 2022, alleging that USAA not only did not satisfy its duties to the Velazquez estate as an insurer but also made numerous misrepresentations during its process. Id. at 4. In September, USAA invoked this Court's diversity jurisdiction under 28 U.S.C. § 1332 and removed the state case to federal court. See 28 U.S.C. §§ 1441, 1446(b)(2)(B) (removal to federal court permitted within thirty days of service of process); [Doc. 1, pp. 1-2]. Later that month, USAA filed the present Motion to Dismiss Plaintiff's Original Complaint. [Doc. 5]. Mostoller responded in November, [Doc. 18], and USAA replied in December, completing briefing. [Docs. 21, 22]. The parties consented to my presiding. See [Docs. 3, 9, 12].

III. LEGAL BACKGROUND

Mostoller alleges four counts against USAA.^[5] First, she asserts USAA acted in bad faith toward Carlos's estate during the claims process. [Doc. 1-1, pp. 9-10]. Second, she asserts USAA breached an implied covenant of good faith and fair dealing owed to the estate of a policy owner. Id. at 10-11. Third, Mostoller claims USAA breached its insurance contract with the Velazquezes by failing to honor her request for payment under the policy. Id. at 11-13. Finally,

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Mostoller contends that USAA negligently misrepresented that Carlos's estate would receive the rider benefit when USAA knew or should have known that the benefit would actually be paid to Ramirez, causing the estate, in reliance, to pay other funds to Ramirez which it would not otherwise have paid. Id. at 15. USAA moves to dismiss each count under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). [Doc. 5, pp. 6-7, 9-10]. The Court discusses its application of New Mexico law and applicable standards for dismissal below.

a. Application of State Law in Federal Court

Under the Erie doctrine,^[6] federal courts exercising diversity jurisdiction generally apply the forum State's substantive law and federal procedural law. Haberman v. Hartford Ins. Grp., 443 F.3d 1257, 1264 (10th Cir. 2006). Mostoller's claims arise under New Mexico common law, so the Court follows that approach in this case. See [Doc. 1-1, pp. 9-15]. A State's substantive law is established by its statutes and the holdings of the State's high court. See Stickley v. State Farm Mut. Auto. Ins. Co., 505 F.3d 1070, 1076-77 (10th Cir. 2007) (applying an Erie doctrine analysis to a state statute and the forum State's courts' interpretation of it); Brady v. Maryland, 373 U.S. 83, 90 (1963) (“[W]hen we explore state law . . . state courts, state agencies, and state legislatures are its final expositors under our federal regime”). If neither state statutory nor common law squarely addresses an issue in the case, the Court must make a prediction, called an “Erie...