Schumacher v. State Auto. Mut. Ins. Co.
| Decision Date | 18 September 2014 |
| Docket Number | No. 1:13–cv–00232.,1:13–cv–00232. |
| Court | U.S. District Court — Southern District of Ohio |
| Parties | Mark SCHUMACHER and Andrea Schumacher, et al., Plaintiffs, v. STATE AUTOMOBILE MUTUAL INSURANCE CO., et al., Defendants. |
Janet Gilligan Abaray, Burg Simpson Eldredge Hersh & Jardine, P.C., Cincinnati, OH, for Plaintiffs.
Matthew Jon Smith, Smith Rolfes & Skavdahl Company LPA, Cincinnati, OH, James P. Gaughan, Jr., Schiff Hardin LLP, Chicago, IL, for Defendants.
This matter is before the Court on the Motion to Dismiss by Defendants State Automobile Mutual Insurance Company, State Auto Financial Corporation, and State Auto Property and Casualty Insurance Company (doc. 8); Plaintiffs' response in opposition (doc. 15); Defendants' reply (doc. 16); and Plaintiffs' surreply (doc. 23), filed with the Court's permission (doc. 22). Oral argument was heard on August 29, 2013. For the reasons that follow, Defendants' motion is GRANTED IN PART AND DENIED IN PART.
Plaintiffs Mark and Andrea Schumacher, residents of Kentucky, filed the original Class Action Complaint in this case against three Defendants, State Automobile Mutual Insurance Company, State Auto Financial Corporation and State Auto Property and Casualty Insurance Company (see doc. 1). The First Amended Class Action Complaint names the same three defendants but adds five more Plaintiffs: Mary Carmen Evans, a resident of Ohio (doc. 7 ¶ 2); Mary and Arthur Maier, also residents of Ohio (id. ¶ 3); and Calvin and Gabrielle Hendryx–Parker, residents of Indiana (id. ¶ 4).
By way of background, the standard homeowners policy sold in the United States is referred to as an “HO0003” and includes the following coverages: Coverage A (for the dwelling), Coverage B (other structures), Coverage C (personal property) and Coverage D (loss of use). The customary levels of coverage are: Coverage B (10% of Coverage A), Coverage C (50% of Coverage A) and Coverage D (20% of Coverage A). If an insured's policy limits for the dwelling and other structures (Coverage A and Coverage B) equals 80% of the structures' full replacement cost, under policy HO0003 the insured is entitled to payment of full replacement costs for damaged or destroyed property up to policy limits. (Id. ¶¶ 26–32.)1 Through an endorsement known as its “Defender Coverage,” State Auto markets another product to its customers that professes outright to provide “100% replacement cost coverage.” Its levels of coverage are: Coverage B (10% of Coverage A), Coverage C (70% of Coverage A) and Coverage D (30% of Coverage A).2 (Id. ¶ 35.) Policyholders with the Defender Endorsement give State Auto full authority to adjust the Coverage A (the dwelling) limit and corresponding premium in accordance with property evaluations made by State Auto and any increases in inflation (id. ¶ 38).
According to Plaintiffs, use of the catch-phrase “100% replacement cost coverage” in the Defender Endorsement creates an impression that a homeowner needs to purchase this endorsement in order to be adequately insured (id. ¶ 36). However, as long as the structures are insured at 80% of their full replacement cost, policy HO0003 provides that protection (id. ¶ 32). Beginning in 2009, State Auto advised Plaintiffs, as insureds with the Defender Endorsement, that it was introducing its “Insurance–to–Value” Program (“ITV program”) for the purpose of re-evaluating the replacement cost of their homes (id. ¶ 52 & Exh. 1). Plaintiffs claim that, under the guise of this program, State Auto improperly raised their premiums to offset underwriting losses incurred because of an increased number of climatic events such as hurricanes, tornados, floods and earthquakes (id. ¶¶ 40–42). Specifically, Plaintiffs allege that State Auto has increased coverage limits for Coverage A far in excess of the actual value of their property (id. ¶ 43). An increase in coverage limits, of course, means an increase in the premiums paid by them. Plaintiffs contend that, because the replacement cost of their homes would be well below the inflated amount of the coverage limit, State Auto has assumed no additional risk yet received more in premiums. And by increasing Coverage A limits, in turn the coverage limits for Coverage B, Coverage C and Coverage D also were increased as they are calculated as a percentage of Coverage A. (Id. ¶¶ 45.) Moreover, these unilateral increases in Coverage A limits effectively eliminated any chance that State Auto ever would be required to provide the 25% bonus guaranteed by the Defender Endorsement, rendering illusory the bargained-for benefit (id. ¶¶ 37, 44).
For example3 , the Schumacher Plaintiffs purchased their new construction home, located in Campbell County, Kentucky, in 2001 for $234,500 (id. ¶ 72). Their independent insurance agent sold them a homeowners policy issued by State Auto with its Defender Endorsement (id. ¶¶ 72, 73). Since 2001, Plaintiffs have not made any significant improvements to their home that would trigger a substantial increase in property value, but have instead engaged in normal maintenance only (id. ¶ 77). The value of their property has not otherwise materially appreciated, but has remained basically stagnant (id. ¶¶ 75–76). The builder from whom Plaintiffs bought their home continues to construct and sell-for a comparable price-homes in their neighborhood that are similar to the one they own (id. ¶ 78). For the period 10/19/2010 to 10/19/2011, State Auto increased the limits for Plaintiffs' dwelling (Coverage A) to $339,500, more than $100,000 in excess of the original purchase price. In turn, their Coverage C limits (70% of Coverage A) rose to $237,650 even though they had no unusual person property or collections. Their total premium was $889. (Id. ¶¶ 79–81 & Exh. 3.) For the period 10/19/2011–10/19/2012, State Auto again increased the limits for Plaintiffs' dwelling, this time to $408,400, even though no material changes to the property occurred. In turn, again, their Coverage C limits rose to $285, 880. Their total premium was $1,090. (Id. ¶¶ 82–84 & Exh. 4.) For the period 10/19/2012–10/19/2013, State Auto continued its pattern, increasing the limits for Plaintiffs' dwelling to 503,600, with Coverage C rising to $352,520. Their total premium was $1,381. (Id. ¶¶ 85–87 & Exh. 5.) Plaintiffs contend that, in three year time period, State Auto raised their coverage limits over 48%, and, in turn, their premiums more than 55%, all purportedly because of the need to provide adequate replacement cost coverage (id. ¶ 88). Plaintiffs further contend, in the Commonwealth of Kentucky alone, in the wake of the ITV program, State Auto increased its revenues from homeowner policy premiums by $1,130,636 for the period 2010–20124 , yet had 7,158 fewer policyholders in this time band5 . Thus, State Auto realized a 3.4% increase in premiums on 20.4% fewer properties. (Id. ¶ 66.)
Plaintiffs have pled six causes of action on behalf of themselves and the putative class: tortious breach of the duty of good faith and fair dealing (doc. 7 ¶¶ 183–201 (Count I)); negligent misrepresentation and fraud (doc. 7 ¶ ¶ 202–219 (Count II)); violation of the Ohio Deceptive Trade Practices Act (doc. 7 ¶¶ 220–227 (Count III)); fraudulent inducement (doc. 7 ¶¶ 228–238 (Count IV)); breach of contract (doc. 7 ¶¶ 239–245 (Count V)); and breach of the duty of good faith and fair dealing (doc. 7 ¶¶ 246–251 (Count VI)).
Defendants' 12(b)(6) motion asks the Court to dismiss all six claims. In the alternative, Defendant State Auto Financial Corporation asks to be dismissed because it is not alleged to have insured any of the Plaintiffs. Also in the alternative, Defendants ask that Plaintiffs Mary Carmen Evans and Plaintiffs Calvin and Gabrielle Hendryx–Parker be dismissed because the declaration pages attached to the First Amended Class Action Complaint show that they were not insured by the Defendants specifically named in this action.
In Bell Atlantic Corp. v. Twombly, the Supreme Court retired the half-century-old pleading standard of Conley v. Gibson that a claim should not be dismissed “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Twombly, 550 U.S. 544, 546, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citing Conley v. Gibson, 355 U.S. 41, 45–46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) (emphasis added)).
Federal Rule of Civil Procedure 8(a)(2) “demands more than an unadorned, the defendant-unlawfully-harmed-me accusation.” Kline v. Mortgage Electronic Security Systems, 659 F.Supp.2d 940, 945 (S.D.Ohio 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). A pleading is insufficient if it only offers “a formulaic recitation of the elements of a cause of action” or tenders nothing more than “labels and conclusions.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. A complaint must “state a claim to relief that is plausible on its face” or risk dismissal under Fed.R.Civ.P. 12(b)(6). Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ). While a court must accept as true all of the factual allegations of the complaint, it is not so bound with regard to legal conclusions, particularly when couched as the former. Iqbal, 556 U.S. at 678–79, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citing Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) )).
As earlier catalogued, the First Amended Class Action Complaint contains a total of six causes of action: three sounding in tort, two in contract, and one based on an Ohio statute. A preliminary issue we must resolve is which state's law governs. Defendants maintain that the law from each named Plaintiff's home state should govern the common law claims. Thus, in their...
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