Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-02810/USCOURTS-azd-2_06-cv-02810-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Breach of Contract

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The request for oral argument is denied because the parties have thoroughly discussed

the law and evidence and oral argument will not aid the Court’s decisional process. See

Mahon v. Credit Bur. of Placer County, Inc., 171 F.3d 1197, 1200 (9th Cir. 1999).

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Amanda K. Horton, 

Plaintiff, 

vs.

USAA Casualty Insurance Company, a

foreign insurer,

Defendant. 

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No. CV-06-2810-PHX-DGC

ORDER

Plaintiff Amanda Horton commenced this insurance coverage action by filing a

complaint against Defendant USAA Casualty Insurance Company in Arizona state court on

October 19, 2006. Plaintiff asserts breach of contract and bad faith tort claims personally

and on behalf a class of similarly situated individuals. Defendant removed the case to this

Court on November 20, 2006. Dkt. #1.

Defendant has filed a motion to dismiss the complaint pursuant to Rule 12(b)(6) of

the Federal Rules of Civil Procedure. Dkt. #6. Plaintiff has filed a response to the motion

and Defendant has filed a reply. Dkt. ## 7, 10. For the reasons set forth below, the Court

will deny the motion.1

Case 2:06-cv-02810-DGC Document 11 Filed 02/20/07 Page 1 of 6
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I. Motion to Dismiss Standard.

A complaint may not be dismissed under Rule 12(b)(6) “unless it appears beyond

doubt that the plaintiff can prove no set of facts in support of [her] claims which would

entitle [her] to relief.” Barnett v. Centoni, 31 F.3d 813, 816 (9th Cir. 1994). “In determining

whether a complaint states a claim, all allegations of material fact are taken as true and

construed in the light most favorable to the plaintiff.” Id. In addition, the court must

“assume that all general allegations embrace whatever specific facts might be necessary to

support them.” Peloza v. Capistrano Unified Sch. Dist., 37 F.3d 517, 521 (9th Cir. 1994).

II. Factual Allegations.

This description of the facts is taken from Plaintiff’s complaint and the insurance

policy referenced therein. As noted above, all allegations of material fact are assumed to be

true for purposes of this decision.

Plaintiff was an insured under an automobile insurance policy issued by Defendant,

Policy No. 01222-09-86 (“Policy”). Dkt. #1, Ex. 1 (“Compl.”) ¶ 5. Plaintiff paid an

additional premium for medical payments coverage. Id. ¶ 6. This coverage required

Defendant to pay the reasonable fee for medically necessary and appropriate medical services

caused by an auto accident. Id. ¶¶ 7, 35. The Policy defines “reasonable fee” as the lesser

of (1) the actual charge, (2) the charge negotiated with a provider, or (3) the charge

determined by a statistically valid database that reflects the costs for the same or similar

procedures or services in the same or similar geographic area. Dkt. #6 Ex. 1.

On December 28, 2004, Plaintiff was involved in an auto accident in Phoenix,

Arizona. Compl. ¶ 8. As a result of that accident, Plaintiff reasonably and necessarily

incurred certain medical and dental expenses. Id. ¶ 9. Plaintiff timely notified Defendant of

the accident and her claim for payment of the covered medical and dental expenses. Id. ¶ 10.

Defendant employed computer software to arbitrarily and unilaterally reduce the amount paid

on Plaintiff’s covered dental expenses. Id. ¶ 15. Defendant has failed to pay $1,573.67 in

covered dental expenses. Id. ¶¶ 12, 14. This failure required Plaintiff to pay the balance of

the dental expenses she reasonably and necessarily incurred. Id. ¶ 12.

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III. Does the Complaint Fail to State a Claim?

To survive a motion to dismiss for failure to state a claim under Rule 12(b)(6),

a complaint generally must satisfy only the minimal notice pleading requirements of

Rule 8(a)(2). That rule “requires only that the complaint include ‘a short and plain statement

of the claim showing that the pleader is entitled to relief.’” Porter v. Jones, 319 F.3d 483,

494 (9th Cir. 2003).

A. Breach of Contract.

To state a breach of contract claim, “the complaint must allege an agreement, the right

to seek relief, and breach by the defendant.” Commercial Cornice & Millwork, Inc. v. Camel

Constr. Servs. Corp., 739 P.2d 1351, 1355 (Ariz. Ct. App. 1987) (citing City of Tucson v.

Superior Ct., 569 P.2d 264 (Ariz. Ct. App. 1977)). The complaint in this case alleges that

Defendant’s failure to perform as required under the Policy constitutes a breach of contract,

and that Plaintiff has sustained actual damages as a result of Defendant’s breach. Compl.

¶¶ 20-21. These allegations satisfy the minimal pleading requirements of Rule 8(a)(2). See

Commercial Cornice & Millwork, 739 P.2d at 1355; Wyler Summit P’ship v. Turner Broad.

Sys., Inc., 135 F.3d 658, 664 (9th Cir. 1998).

Defendant claims that most of Plaintiff’s allegations are “conclusory” and that they

do not include any “facts” that would constitute a breach of the actual terms of the Policy.

Dkt. #6 at 5-7. Defendant asserts that Plaintiff’s breach of contract claim “rests on the

solitary allegation that [Defendant] used software that allegedly ‘arbitrarily’ reduced the

payment.” Id. at 7. Citing North Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578 (9th Cir.

1983)), Defendant contends that this allegation is not one of fact, but is the type of

conclusory allegation that courts disregard on a motion to dismiss.

Defendant’s reliance on North Star is misplaced. In North Star, the plaintiff asserted

claims challenging the constitutionality of Arizona’s securities statutes on the ground that

they were being applied in an “arbitrary, capricious, and discriminatory manner.” Id. at 583.

The Ninth Circuit held that the claims were properly dismissed because the complaint was

“vague, conclusory, and general and [did] not set forth any material facts in support of the

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allegations[.]” Id.

The complaint in this case, unlike the complaint in North Star, “[does] allege some

facts to accompany [the] recitation of the elements of [the] claim.” Ascon Props., Inc. v.

Mobil Oil Co., 866 F.2d 1149, 1155-56 (9th Cir. 1989) (distinguishing North Star because

the plaintiff’s allegations “provided general notice of the nature of [its] claim”); see Compl.

¶¶ 1-16. The complaint specifically identifies the insurance policy at issue (¶ 5), the

coverage provision allegedly breached by Defendant (¶¶ 7 & 35), the date and location of the

auto accident in question (¶ 8), and the amount of Plaintiff’s alleged unpaid loss under the

Policy (¶ 12). The complaint also explains the specific manner of the alleged breach, i.e., the

use of “computer software to arbitrarily and unilaterally reduce the amount paid on

medical/dental bills under Defendant’s medical payments coverage.” Id. ¶ 15. The

complaint alleges that the computer software employed by Defendant “categorically

eliminates, abates, and/or reduces charges actually incurred above a selected percentile level”

and “systematically eliminate[s] payments for costs beyond a predetermined, statistical mean

in given geographical regions.” Id. ¶¶ 36, 45. The complaint further alleges that Defendant’s

use of the computer software “to reduce medical benefits is . . . unreasonable.” Id. ¶ 46; see

also id. ¶¶ 38-47.

A reasonable inference from these allegations is that Defendant has failed to pay

the reasonable fee for medically necessary and appropriate medical services as required

under the Policy because the database used by Defendant to determine the covered fee

amount is not statistically valid. See Dkt. #6 Ex. 1, Policy Part B – Medical Payments

Coverage. “[A]t this early stage of litigation, it is not clear that no relief could be granted

under any set of facts that could be proved consistent with the allegations.” Falkowski v.

Imation Corp., 309 F.3d 1123, 1131-32 (9th Cir. 2002). 

B. Bad Faith.

Defendant contends that the bad faith tort claim fails as a matter of law because

Plaintiff has not actually alleged a breach of contract. Dkt. #6 at 8. Specifically, Defendant

contends that because the Policy permits Defendant to determine the reasonable fee for

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medical payments coverage by use of a statistically valid database, that act cannot form the

basis of a bad faith claim. Id. As explained above, however, the complaint reasonably can

be construed as alleging that the database Defendant used to determine the reasonable fee for

medical payments coverage was not statistically valid. See Compl. ¶¶ 36-47.

Defendant further contends that Plaintiff asserts nothing more than “conclusory

allegations of wrongdoing.” Dkt. #6 at 8 (citing Compl. ¶ 26). To the contrary, the

complaint alleges material facts in support of the allegation that Defendant acted in bad faith

by failing to investigate Plaintiff’s claim, misconstruing Policy language against Plaintiff,

arbitrarily reducing Policy benefits, and failing to give Plaintiff’s interests equal

consideration. See Compl. ¶¶ 10, 12, 14-16, 33, 36-47. The complaint specifically alleges

that Defendant’s actions in utilizing computer software to “deny or reduce medical expenses

is [a] breach of its implied duty of good faith and fair dealing, including its obligation to

conduct a full and fair evaluation of each claim and to not unreasonably deny or withhold

benefits.” Id. ¶ 49. These allegations are sufficient to satisfy the minimal pleading

requirements of Rule 8(a)(2). See Zilisch v. State Farm Mut. Auto. Ins. Co., 995 P.2d 276,

¶ 20 (Ariz. 2000); Prieto v. Paul Revere Life Ins. Co., 354 F.3d 1005, 1009-10 (9th Cir.

2004).

C. Conclusion.

“The Supreme Court has cautioned that, in reviewing the sufficiency of the complaint,

‘the issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled

to offer evidence to support the claims. Indeed it may appear on the face of the pleadings

that a recovery is very remote and unlikely but that is not the test.’” McGary v. City of

Portland, 386 F.3d 1259, 1261 (9th Cir. 2004) (quoting Scheuer v. Rhodes, 416 U.S. 232,

236 (1974)). Rather, the test is whether the complaint contains “‘a short and plain statement

of the claim that will give the defendant fair notice of what the plaintiff’s claim is and the

grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957) (quoting Fed. R.

Civ. P. 8(a)(2)). Following the guidance of Rule 8(f) that “[a]ll pleadings shall be so

construed as to do substantial justice,” the Court concludes that Plaintiff’s complaint

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adequately states breach of contract and bad faith tort claims and gives Defendant fair notice

of the basis of each claim. See id. at 48.

IT IS ORDERED:

1. Defendant’s motion to dismiss (Dkt. #6) is denied.

2. The Court will schedule a Rule 16 case management conference by separate

order.

DATED this 20th day of February, 2007.

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