Nicholes v. Combined Ins. Co. of Am.

Decision Date28 June 2017
Docket NumberCIVIL ACTION NO. 5:16-cv-10203
CourtU.S. District Court — Southern District of West Virginia

The Court has reviewed the First Amended Class Action Complaint (Document 5), Combined Insurance Company of America's Motion to Dismiss (Document 9) and Memorandum in Support of Motion to Dismiss (Document 10), Plaintiff Lucenda Nicholes' Opposition to Defendant's Motion to Dismiss First Amended Complaint (Document 16), and Combined Insurance Company of America's Reply in Support of Motion to Dismiss (Document 17), as well as all attached exhibits. In addition, the Court has reviewed the Plaintiff's Motion for Leave to File Second Amended Complaint and Memorandum of Law in Support (Document 24), the attached proposed Second Amended Class Action Complaint (Document 24-1), Combined Insurance Company of America's Response in Opposition to Plaintiff's Motion for Leave to File Second Amended Complaint and Memorandum of Law in Support (Document 25), and the Plaintiff's Reply to Defendant's Response in Opposition to Plaintiff's Motion for Leave to File Second Amended Class Action Complaint and Memorandum of Law in Support (Document 26). For the reasons stated herein, the Court finds that the motion to amend should be granted, and the motion to dismiss should be granted in part and denied in part.


The Plaintiff's response to the motion to dismiss indicated that she would seek to amend her complaint to clarify the factual and legal basis of her claims if the motion to dismiss were granted. The Court entered an order requiring her to file a separate motion to amend if she wished to do so. The Plaintiff filed a motion to amend, together with her proposed second amended class action complaint. She argues that she should be permitted to amend under the permissive standard for amendments early in a case. The Defendant opposes the motion to amend, arguing that it would be futile.

Rule 15(a)(2) of the Federal Rules of Civil Procedure encourages Courts to freely grant motions for leave to amend pleadings "when justice so requires." Fed. R. Civ. P. 15(a)(2). "A district court may deny a motion to amend when the amendment would be prejudicial to the opposing party, the moving party has acted in bad faith, or the amendment would be futile." Equal Rights Ctr. v. Niles Bolton Associates, 602 F.3d 597, 603 (4th Cir. 2010). "Motions to amend are typically granted in the absence of an improper motive, such as undue delay, bad faith, or repeated failure to cure a deficiency by amendments previously allowed." Harless v. CSX Hotels, Inc., 389 F.3d 444, 447 (4th Cir. 2004).

The Court finds that the filing of an amended complaint in this case would not prejudice the Defendant, and that the amended complaint was not offered in bad faith.1 Given the status of the fully briefed motion to dismiss on the prior complaint, and the futility arguments briefed in response to the motion to amend, the Court will combine the futility analysis with the arguments made relative to the motion to dismiss to determine whether the amended complaint contains any viable cause(s) of action. Thus, the factual allegations below are drawn from the proposed second amended complaint.


The Plaintiff, Lucenda Nicholes, alleges that "Combined Insurance routinely and systematically sells policies to West Virginia insurance consumers that, by law, are ineligible for the insurance benefits for which they pay premiums under these Combined Insurance policies because they are Medicaid recipients" and fails to disclose the illusory nature of the insurance. (Sec. Am. Compl. at ¶ 9.) She asserts that sales agents are trained to "canvass poor and minority neighborhoods" and use high-pressure sales tactics. (Id. at ¶ 18.) Agents do not disclose that benefits under the health and accident insurance policies are unavailable to Medicaid recipients, and that any insurance benefits would be denied or paid directly to medical providers. Instead, they use prepared insurance applications that indicate the applicant is not a Medicaid recipient without raising the issue with the consumers. Combined Insurance does not offer a refund of any premium payments for Medicaid recipients.

Ms. Nicholes lives on Social Security of less than $800 per month. She receives Medicaid. A Combined Insurance agent visited her home in September 2013 to sell her an "Accident & Sickness Protector" policy, which she purchased by paying an initial premium of $54.17. Subsequently, her bank account was debited $54.17 per month. The agent "unilaterally filled out the entire application...without obtaining material, relevant information from the Plaintiff in order to accurately respond to the questions asked in the application, including her Medicaid status." (Id. at ¶ 31.) He marked, incorrectly, that she was not on Medicaid, and did not inform her that her Medicaid status would render her ineligible for policy benefits. The agent showed Ms. Nicholes only the signature page of the application, as well as a separate form authorizing automatic debit payments. The same agent sold Ms. Nicholes another "Accident & Sickness Protector" policy on or about November 25, 2014, using an electronic application he had previously filled in. He again presented only the signature page of the application to Ms. Nicholes. The agent sold Ms. Nicholes a third policy, with the same sales methods, on March 17, 2015, after leading her to believe her November 2014 policy had lapsed. After the purchase of the March 2015 policy, "Combined Insurance began debiting Plaintiff's bank account twice every month in the amount of $54.17 to collect the monthly premiums on both the March 2015 and the November 2014 policies." (Id. at ¶ 41.) Ms. Nicholes alleges that she became aware of the multiple debits because they caused her account to be overdrawn. She began calling Combined during the summer of 2015 to address the double withdrawals on her account. During those communications, a Combined employee asked about her Medicaid status, but did not inform her that she could not receive insurance benefits while on Medicaid. Ms. Nicholes obtained counsel due to the account debits and overdraft fees in the fall of 2015. She became aware that she was ineligible for benefits because of her Medicaid status after her counsel obtained documents from Combined in December 2015.

The Plaintiff brings this case on behalf of herself and the following proposed class:

(a) All West Virginia residents who purchased a Combined Supplemental Insurance policy under which Medicaid recipients are ineligible to receive payment of benefits under the policy; and
(b) The Supplemental Insurance policy was purchased in the four years preceding the filing of this lawsuit at which time the insured was covered by Medicaid benefits.

(Id. at ¶ 54.) She seeks relief under the Insurance Trade Practices Act, the Consumer Protection Act, and for mutual mistake and rescission. Ms. Nicholes seeks class certification; a declaration that the described sale of supplemental insurance to Medicaid recipients violates the Insurance Practices Act and the Consumer Protection statute; an injunction preventing Combined Insurance from selling to Medicaid recipients; compensatory damages, actual damages, and statutory damages; rescission of the insurance policies and costs and attorneys' fees.


A motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a complaint. Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009); Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008).2 "[T]he legal sufficiency of a complaint is measured by whether it meets the standard stated in Rule 8 [of the Federal Rules of Civil Procedure] (providing general rules of pleading) . . . and Rule 12(b)(6) (requiring that a complaint state a claim upon which relief can be granted.)" Id. Federal Rule of Civil Procedure 8(a)(2) requires that a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2).

In reviewing a motion to dismiss under Rule 12(b)(6) for failure to state a claim, the Court must "accept as true all of the factual allegations contained in the complaint." Erikson v. Pardus, 551 U.S. 89, 93 (2007). The Court must also "draw[ ] all reasonable factual inferences from those facts in the plaintiff's favor." Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999). However, statements of bare legal conclusions "are not entitled to the assumption of truth" and are insufficient to state a claim. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Furthermore, the Court need not "accept as true unwarranted inferences, unreasonable conclusions, or arguments." E. Shore Mkts., v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice... [because courts] 'are not bound to accept as true a legal conclusion couched as a factual allegation.'" Iqbal, 556 U.S. at 678 (quoting Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

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.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570.) In other words, this "plausibility standard requires a plaintiff to demonstrate more than 'a sheer possibility that a defendant has acted unlawfully.'" Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Twombly, 550 U.S. at 570.) In the complaint, a plaintiff must "articulate facts, when accepted as true, that 'show' that the plaintiff has stated a claim entitling him to relief." Francis, 588 F.3d at 193 (quoting Twombly, 550 U.S. at 557.)...

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