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Woodhams v. Allstate Fire and Casualty Co.

September 28, 2010

THOMAS D. WOODHAMS, ET AL., PLAINTIFFS,
v.
ALLSTATE FIRE AND CASUALTY COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: John G. Koeltl, District Judge

OPINION AND ORDER

The plaintiffs, Thomas D. Woodhams and Charlene Connors, bring this purported class action asserting several causes of action against the defendants, Allstate Insurance Company ("Allstate Insurance"), Allstate Indemnity Company ("Allstate Indemnity"), Allstate Property & Casualty Insurance Company ("Allstate Property"), and Allstate Fire and Casualty Company ("Allstate Fire") (collectively, "Allstate" or "the defendants"). All of the plaintiffs' claims arise out of Allstate's alleged practice of requiring that insured property owners suffering real property losses due to fire replace or complete repairs of insured property within a 180-day window in order to receive reimbursement for the cost of replacement or repair, an amount that would be higher than the actual cash value of the damaged property. Woodhams and Connors suffered an insured fire loss in 2007 but, because they could not complete repairs within 180 days, were denied replacement cost coverage.

The plaintiffs' complaint alleges eight causes of action. Count I seeks the return of a pro-rated portion of the plaintiffs' premiums. Count II alleges a breach of the initial insurance contracts. Count III requests a declaratory judgment. Count IV alleges a breach of contracts settling plaintiffs' claims. Count V alleges fraud. Count VI alleges a breach of the implied covenant of good faith and fair dealing. Count VII claims that Allstate owed the plaintiffs a fiduciary duty, which it allegedly breached. Count VIII requests relief under New York General Business Law ("GBL") section 349, which prohibits deceptive business acts and practices.

Each of these claims, to one degree or another, relies on the plaintiffs' assertion that the 180-day completion requirement is prohibited by New York Insurance Law ("NYIL") section 3404, which sets minimum terms and provisions for fire insurance policies. The plaintiffs also claim that the 180-day completion requirement is inconsistent with the terms of the insurance contracts, and that Allstate misleadingly offered policies promising replacement or repair coverage while knowing that the 180-day completion requirement would bar most losses from coverage.

The plaintiffs brought their action in the New York State Supreme Court, New York County. The defendants subsequently removed the action pursuant to the Class Action Fairness Act of 2005 (CAFA), 28 U.S.C. § 1332(d), and now move to dismiss the plantiffs' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) or for judgment on the pleadings pursuant to Rule 12(c). They argue principally that the 180-day completion requirement is not contrary to law and that the filed rate doctrine bars the court from ordering refunds of portions of the plaintiffs' premiums. They also argue that the 180-day completion requirement is consistent with all relevant contracts and that none of Allstate's communications were deceptive or misleading, and that the plaintiffs failed to plead fraud with particularity, in violation of Federal Rule of Civil Procedure 9. Finally, Allstate Fire and Allstate Property argue that the plaintiffs lack standing to sue them, because the plaintiffs never contracted with Allstate Fire or Allstate Property.

I.

A.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true and all reasonable inferences must be drawn in the plaintiffs' favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007); Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995). The Court should not dismiss the complaint if the plaintiffs have stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Id.; see also SEC v. Rorech, 673 F. Supp. 2d 217, 221 (S.D.N.Y. 2009). The standards to be applied to a motion pursuant to Rule 12(c) are the same as those applied to a motion pursuant to 12(b)(6). See, e.g., Cleveland v. Caplaw Enters., 448 F.3d 518, 521 (2d Cir. 2006).

In deciding the motion, the Court may consider documents that are referenced in the complaint, documents that the plaintiffs relied on in bringing suit and that either are in the plaintiffs' possession or were known to the plaintiffs when they brought suit, or matters of which judicial notice may be taken. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993).

B.

The following facts are undisputed, unless otherwise noted. Allstate Fire, Allstate Indemnity, and Allstate Property are each subsidiary companies of Allstate Insurance. (Compl. ¶ 12-13.) Allstate sells property insurance policies in New York that cover, among other things, damage due to fire. (Id. ¶ 1.)

In the early 1990s, Allstate*fn1 allegedly sought to increase its profits by reducing the number and amount of claims it paid out. (Id. ¶¶ 21-28.) In furtherance of this goal, it changed the language in its property damage policies regarding coverage of replacement or repair costs. Prior to the change, the language read:

If you decide not to repair or replace the damage[d] property, settlement will be on an actual cash value basis, not to exceed the limit of liability applicable to the building. You may make claim within 180 days after the date of the loss for any additional payment on a replacement cost basis if you repair the damaged property.

(Id. ¶ 30.) The plaintiffs point out that this language only required a policyholder to make a claim for this additional replacement cost coverage within 180 days of the date of loss.

It did not require that repairs be completed within any period of time.

In the mid-'90s, Allstate revised this policy to state the following:

If you do not... repair or replace the damage[d] building structure, payment will be on an actual cash value basis.... You may make claim for additional payment... if you repair or replace the damaged, destroyed, or stolen covered property within 180 days of the actual cash value payment.

(Id. ¶ 32.) The policy also stated that "[w]hen the policy provisions conflict with the statutes of the state in which the residence premises is located, the provisions are amended to conform to such statutes." (Sisson Decl. Ex. B at 4.)

The New York State Insurance Department ("NYSID") approved this language in 1994. (Wittman Decl. Exs. A, C.)*fn2 Since then, Allstate has issued policies with this language. (Compl. ¶ 34.) Although NYSID rejected a revised form that Allstate submitted in 2009, because of the 180-day completion requirement, the complaint does not allege that NYSID ever withdrew the approval issued in 1994. (Id. ¶¶ 56-60, Ex. C.)

Allstate interpreted its language to require that repairs or replacements be completed within 180 days of the date that it paid claimants the actual cash value of the covered property. (Id. ¶¶ 35-37.) Thus, under Allstate's interpretation, Allstate's policies entitle its insured to both the actual cash value of the insured property and, if repairs or replacements were completed within 180 days of the actual cash value payment, the cost of repair or replacement. (Certain exclusions that are irrelevant here also apply.)

Allstate allegedly failed to disclose and, according to the complaint, "intentionally obscured and concealed" the terms of its replacement cost coverage. (Id. ¶¶ 35, 64-66.) The plaintiffs allege that Allstate has a "policy and practice" of "refus[ing] to allow its agents to provide to prospective purchasers copies of its policies where they would learn the precise terms and conditions of the coverage they are seeking to purchase," and that "Allstate does not send a copy of the policy of insurance to the insured until well after the insured has paid the premiums." (Id. ¶¶ 64-65.) Attached to the complaint is a printout of a summary of Allstate's property insurance offerings taken from Allstate's website. (Id. Ex. B.) The website states that Allstate's policies can cover repair or replacement costs, not to exceed 120% of applicable coverage limits, accompanied by a disclaimer that "all coverages are subject to availability and qualifications. Other terms, conditions and exclusions apply.... Please read your Allstate policy for full coverage details." (Id. Ex. B at 2-4.)

C.

Woodhams and Connors suffered an insured fire loss on January 6, 2007, to real and personal property that was insured by Allstate Indemnity. (Id. ¶ 67, Sisson Decl. Ex. A.) Because Woodhams and Connors were unable to obtain a building permit for six months, and because of a road construction project, they were unable to complete construction within the 180-day replacement period, and Allstate refused to pay over $58,000 in replacement costs. (Compl. ¶ 67.)

In support of its class allegations, the complaint cites similar occurrences involving nine unnamed Allstate insureds. (Id. ¶¶ 68-76.)

II.

The defendants argue that the above facts fail to state a claim, and therefore move for dismissal under Federal Rule of Civil Procedure 12(b)(6) or for judgment on the pleadings under Federal Rule of Civil Procedure 12(c).*fn3 Although they argue against each count of the complaint individually, each count turns to some degree on the same two questions: whether Allstate's 180-day completion requirement is inconsistent with NYIL ยง 3404, and whether the requirement is inconsistent with the language of ...


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