Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-3_07-cv-01071/USCOURTS-almd-3_07-cv-01071-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Declaratory Judgement

---

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

EASTERN DIVISION

UNITED STATES LIFE INSURANCE )

COMPANY OF AMERICA IN THE )

CITY OF NEW YORK, )

)

Plaintiff, ) CASE NO. 3:07-CV-1071-WKW [WO]

 ) 

v. )

 )

RONNIE JAMES HERRING, )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

Before the court is Plaintiff’s renewed motion to dismiss Defendant’s counterclaims

(Doc. # 39), which is accompanied by a memorandum of law (Doc. # 40). Defendant filed

a response (Doc. # 44), to which Plaintiff replied (Doc. # 45). Upon Defendant’s motion

(Doc. # 46), the court granted Defendant leave to file a surreply (Doc. # 47), which

Defendant did (Doc. # 48). For the following reasons, Plaintiff’s renewed motion to dismiss

Defendant’s counterclaims is due to be denied in part and granted in part.

I. JURISDICTION AND VENUE

Jurisdiction is exercised pursuant to 28 U.S.C. § 1332 (diversity jurisdiction) and 28

U.S.C. § 2201 (Declaratory Judgment Act). The parties do not contest personal jurisdiction

or venue, and the court finds allegations sufficient to support both. 

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 1 of 18
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II. FACTS AND PROCEDURAL HISTORY

Plaintiff United States Life Insurance Company of America in the City of New York

(“United States Life”) filed claims against Defendant Ronnie James Herring (“Herring”) on

December 7, 2007, for a declaratory judgment, and alleging breach of contract and rescission,

and fraud. (Compl. (Doc. # 1).) United States Life claims that it is entitled to rescind

Herring’s disability insurance policy because Herring made material misrepresentations and

omissions in his policy application but for which United States Life would not have issued

the policy. (Compl. ¶¶ 7-9, 13, 17, 21.) More specifically, Herring allegedly failed to

disclose that he had suffered from and had been treated for narcolepsy since 1998. (Pl.’s

Mem. in Supp. of Mot. to Dismiss ¶ 1.) On November 1, 2001, United States Life issued the

policy certificate, and in March of 2007, Herring filed a claim for benefits and listed

narcolepsy as his disability. (Pl.’s Mem. in Supp. of Mot. to Dismiss ¶¶ 2-3.) In processing

that claim, United States Life obtained Herring’s medical records, which allegedly revealed

there were misrepresentations and omissions on his application, including the narcolepsy

omission. (Pl.’s Mem. in Supp. of Mot. to Dismiss ¶ 4.) Because of those

misrepresentations, United States Life denied Herring’s claim and fully refunded the

premiums paid under the policy. (Pl.’s Mem. in Supp. of Mot. to Dismiss ¶ 5.) The next day,

United States Life filed its complaint. (Pl.’s Mem. in Supp. of Mot. to Dismiss ¶ 6.) 

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 2 of 18
 The requirements for complaints set out in this standard apply to counterclaims as well. The 1

federal rules for pleading by their own terms apply to claims and allegations, not just complaints. See

Fed. R. Civ. P. 8 & 9.

3

With his Answer, Herring asserts seven counterclaims. (Answer (Doc. # 7).) The

counterclaims allege: (1) fraudulent misrepresentation, (2) fraudulent suppression, (3)

reckless/mistaken misrepresentation and suppression of material information, (4)

negligence/wantonness in failing to procure insurance coverage, (5) breach of contract, (6)

bad-faith refusal to pay benefits under a theory of creating a debatable reason not to pay, and

(7) bad-faith refusal to pay benefits under a theory of failing to fully investigate Herring’s

claim. (Answer ¶¶ 4-8.) United States Life moved to dismiss the counterclaims under Rule

12(b)(6) of the Federal Rules of Civil Procedure. (Pl.’s Mot. to Dismiss, 1.) United States

Life argues that the counterclaims are “entirely irrelevant to the matter at hand,” and

separately offers reasons and arguments for dismissing each individual counterclaim. (Pl.’s

Mem. in Supp. of Mot. to Dismiss, 5.) 

III. STANDARD OF REVIEW

A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure

raises the defense of failure to state a claim upon which relief can be granted. Fed. R. Civ. 1

P. 12(b)(6). A Rule 12(b)(6) motion tests the sufficiency of the complaint against the

pleading standards set forth in Rule 8, and if applicable, Rule 9 of the Federal Rules of Civil

Procedure. To state a sufficient claim for relief under Rule 8(a)(2), the complaint must

include only a “short and plain statement . . . showing that the pleader is entitled to relief.”

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 3 of 18
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Fed. R. Civ. P. 8. Nevertheless, Rule 8 “requires more than labels and conclusions, and a

formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v.

Twombly, 127 S. Ct. 1955, 1965 (2007). “Factual allegations must be enough to raise a right

to relief above the speculative level, on the assumption that all the allegations in the

complaint are true (even if doubtful in fact).” Id. at 1965 (citations and footnote omitted).

Rule 9(b) sets forth heightened pleading requirements for allegations of fraud or

mistake. Fed. R. Civ. P. 9(b). A complaint alleging those causes of action “must state with

particularity the circumstances constituting fraud or mistake[,] [though] [m]alice, intent,

knowledge, and other conditions of a person’s mind may be alleged generally.” Id. Rule

9(b) must be read, however, “in conjunction with Rule 8(a).” Brooks v. Blue Cross & Blue

Shield of Fla., Inc., 116 F.3d 1364, 1371 (11th Cir. 1997); see also U.S. ex rel. Clausen v.

Lab. Corp. of Am., Inc., 290 F.3d 1301, 1310 (11th Cir. 2002). With that in mind, a

complaint satisfies Rule 9 if it sets forth:

(1) precisely what statements were made in what documents or oral

representations or what omissions were made, and (2) the time and place of

each such statement and the person responsible for making (or, in the case of

omissions, not making) same, and (3) the content of such statements and the

manner in which they misled the plaintiff, and (4) what the defendants

obtained as a consequence of the fraud. 

U.S. ex rel. Clausen, 290 F.3d at 1310 (quoting Ziemba v. Cascade Int’l, Inc., 256 F.3d 1194,

1202 (11th Cir. 2001)). 

If the complaint fails to meet the requirements of Rule 8, or, in the case of fraud, Rule

9, a court is not required to sua sponte grant leave to amend a complaint to a party

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 4 of 18
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represented by counsel who never moved to amend or requested leave to amend. Wagner v.

Daewoo Heavy Indus. Am. Corp., 314 F.3d 541, 542 (11th Cir. 2002) (en banc). A court

may decline to sua sponte grant leave to amend a complaint if amendment would be “futile.”

Hall v. United Ins. Co. of Am., 367 F.3d 1255, 1263 (11th Cir. 2004); see Spear v. Nix, 215

F. App’x 896, 901 (11th Cir. 2007) (applying Hall’s point on futility to review of a court’s

declining to sua sponte grant leave to amend, post Wagner). 

IV. DISCUSSION

United States Life accuses Herring of asserting counterclaims that “make no sense in

light of the current and only stated basis on which [United States Life] rescinded [Herring’s]

policy.” (Pl.’s Mem. in Supp. of Mot. to Dismiss, 3.) Yet United States Life provides no

authority for reaching that conclusion, let alone for dismissing the counterclaims on those

grounds. It has not argued why Rule 13 of the Federal Rules of Civil Procedure should bar

Herring’s counterclaims. Rule 13 sets out the requirements for compulsory and permissive

counterclaims. A party must raise counterclaims that at the time of service are against the

opposing party and “arise[] out of the same transaction or occurrence that is the subject

matter of the opposing party’s claim,” Fed. R. Civ. P. 13(a)(1)(A); “any claim that is not

compulsory” but is against an opposing party also may be raised, Fed. R. Civ. P. 13(b). If

Herring’s counterclaims fall outside those provisions, United States Life has failed to explain

why; nor has United States Life alluded to another sufficient legal reason why the court

should dismiss the counterclaims as “entirely irrelevant to the matter at hand.” (Pl.’s Mem.

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 5 of 18
6

in Supp. of Mot. to Dismiss, 5.) United States Life argues that because its challenge is not

to whether Herring would be entitled to his proceeds absent grounds for rescission, Herring’s

counterclaims for enforcing the policy have “absolutely nothing to do with the rescission

issues.” (Pl.’s Mem. in Supp. of Mot. to Dismiss, 4.) But Herring is not bound on his

counterclaims to address only the legal issues United States Life’s claims circumscribe.

Without authoritative substantiation, United States Life’s general arguments for dismissal

are weightless. United States Life’s motion must hinge, therefore, on the individual claims

for dismissal of each count. Each count is addressed in turn.

Counterclaim One: False Misrepresentation

The first counterclaim alleges that Herring entered into “an ‘own occupation’

disability insurance policy” with United States Life based on itsrepresentation that the policy

would provide proceeds in the event that Herring ever became disabled and unable to

perform the duties “of his ‘own occupation.’” (Answer, 4 ¶ 1.) Herring alleges that he

“reasonably relied” on those representations and purchased the policy, and that when he later

filed a claim for disability, United States Life “manufactured a reason” to deny him benefits,

causing him several specific injuries. (Answer, 4-5 ¶¶ 2-6.) 

United States Life faults this counterclaim for insufficient pleading under Rule 9 and

argues that Herring “cannot prove the elements necessary to raise a proper fraud claim.”

(Pl.’s Mem. in Supp. of Mot. to Dismiss, 5.) The court finds Herring sufficiently has pled

the elements of fraud under Alabama law, but has failed to meet the Rule 9 pleading

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 6 of 18
 In a diversity action, the claimant must plead the state law elements for his claims, but with

2

sufficient particularity under federal law. See Barrett v. Scutieri, 281 F. App’x 952, 953 (11th Cir. 2008)

(requiring claimant to set forth elements of fraud under state law but to plead with particularity under

federal law); Lundgren v. McDaniel, 814 F.2d 600, 605 (11th Cir. 1987) (“In general, only substantive

state law must be applied; federal law governs matters of procedure.”); McAllister Towing & Transp.

Co., v. Thorn’s Diesel Serv., Inc., 131 F. Supp. 2d 1296, 1302 (M.D. Ala. 2001) (Albritton, J.) (“[T]he

procedure for pleading fraud in federal courts is governed by federal law and not state law . . . in

diversity suits.” (emphasis added)); Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985) (“[W]hile a

federal court will examine state law to determine whether the elements of fraud have been pled

sufficiently to state a cause of action, the Rule 9(b) requirement that the circumstances of the fraud must

be stated with particularity is a federally imposed rule.”). 

 Herring does not define his first counterclaim as a claim of fraudulent misrepresentation but the 3

basis for his claim can be gleaned from the elements he pled, and his responsive brief labels it as such

(Def.’s Resp., 3). Herring does not identify or label any of his claims with specificity in the

counterclaims, instead referring to each as a consecutively-numbered counterclaim. 

7

requirements under federal law. Herring’s first counterclaim is for fraudulent 2

misrepresentation, the elements of which are “(1) a false representation (2) concerning a

material existing fact (3) relied upon by the [counter-]plaintiff (4) who must be damaged as

a proximate result.” Earnest v. Pritchett-Moore, Inc., 401 So. 2d 752, 754 (Ala. 1981); Ala. 3

Code § 6-5-101 (“Misrepresentations of material fact made willfully to deceive, or recklessly

without knowledge, and acted on by the opposite party . . . constitute legal fraud.”).

Herring’s counterclaim alleges all of the elements for fraudulent misrepresentation under

Alabama law: (1) United States Life made a false representation that it would provide

insurance proceeds under the policy if Herring ever became disabled and unable to perform

the duties of his job; (2) the representation concerned United States Life’s paying the

proceeds under the policy, which is clearly a material fact; (3) Herring “reasonably relied”

upon the representations; and (4) he was injured because he paid premiums on a policy the

value of which he lost, he lost interest, he now has no insurance policy, he would have had

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 7 of 18
United States Life’s other argument for dismissing the first counterclaim – that Herring cannot 4

prove the elements for fraudulent misrepresentation – is inconsequential on a motion to dismiss. That

argument goes to the merits of Herring’s counterclaim and misapplies the standard of review. (See Pl.’s

Mem. in Supp. of Mot. to Dismiss, 7-8 (arguing that its representation was true, and that Herring was not

damaged).)

8

proceeds under another policy, and he has suffered mental anguish and emotional distress.

(Answer, 4-5 ¶¶ 1-6.) Herring’s counterclaim fails, however, because it does not meet the

pleading requirements of Rule 9(b). (Answer, 4-5 ¶¶ 1-6.) The pleading deficiencies are 4

explained below in the consolidated discussion of the promissory fraud challenge to the first

four counterclaims, see infra pp. 11-14.

Counterclaim Two: Fraudulent Suppression

Herring’s second counterclaim alleges fraudulent suppression, which requires under

Alabama law a showing “(1) that the defendant had a duty to disclose material facts; (2) that

the defendant concealed or failed to disclose those facts; (3) that the concealment or failure

to disclose induced the plaintiff to act; and (4) that the defendant’s action resulted in harm

to the plaintiff.” Booker v. United Am. Ins. Co., 700 So. 2d 1333, 1339 n.10 (Ala. 1997);

Ala. Code § 6-5-102 (“Suppression of a material fact which the party is under an obligation

to communicate constitutes fraud.”). A duty to disclose arises “where one party has superior

knowledge of a fact and the other party’s having the same knowledge would cause the other

party to take a different course of action.” Indep. Life & Accident Ins. Co. v. Harrington, 658

So. 2d 892, 896 (Ala. 1994); see § 6-5-102 (“The obligation to communicate may arise . . .

from the particular circumstances of the case.”). Herring accuses United States Life of

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 8 of 18
 The court reads Herring’s use of “Plaintiff” when describing which party had to meet additional 5

conditions (Answer, 5 ¶ 8) as a scrivener’s error; the party should have been “Defendant” or some other

indication that he was referring to himself. 

9

failing to disclose that Herring “would have to meet conditions other than the conditions set

forth in the insurance policy before he would be entitled to insurance benefits” (Answer, 5

¶ 8), and United States Life could have superior knowledge of the conditions, if any, an 5

insured must meet outside of those in the insurance policy. Herring also alleges that because

of United States Life’s failure to disclose conditions outside of those in the insurance policy,

he “changed his position and purchased [the] policy of insurance, began paying the necessary

premiums to keep [the] policy in force and refrained from seeking other disability insurance

coverage.” (Answer 6, ¶ 9.) As explained below in the court’s consolidated discussion of

the promissory fraud challenge, however, those allegations are not detailed enough to pass

muster under Rule 9. See infra pp. 11-14.

United States Life argues that the second counterclaim fails in addition because the

statute of limitations for fraud bars it. (Pl.’s Mem. in Supp. of Mot. to Dismiss, 10

(“Defendant’s policy became effective in November 2001. Thus, the two-year statute of

limitations ran out in 2003.”).) United States Life notes that under Alabama law, any fraud

claim must be brought within two years of the accrual of the claim. (Pl.’s Mem. in Supp. of

Mot. to Dismiss, 10.); see Ala. Code § 6-2-38(l) (“All actions for any injury to the person or

rights of another not arising from contract and not specifically enumerated in this section

must be brought within two years.”). What United States Life neglects to point out is that

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 9 of 18
 In this regard, however, Herring’s counterclaims are inartfully pled. He indiscriminately

6

incorporates the prior paragraphs of his counterclaims into subsequent ones without distinguishing which

prior paragraphs are directly relevant. The Eleventh Circuit more than once has reprimanded parties for

filing such “shotgun” claims which “typically . . . contain[] several counts, each one incorporating by

reference the allegations of its predecessors, leading to a situation where most of the counts (i.e., all but

the first) contain irrelevant factual allegations and legal conclusions.” Strategic Income Fund, L.L.C. v.

Spear, Leeds & Kellogg Corp., 305 F.3d 1293, 1296 (11th Cir. 2002) (highlighting the Eleventh Circuit

law addressing “on numerous occasions, in the past, often at great length and always with great dismay”

the problems with these shotgun complaints, id at 1296 n.9; accord id. at 1296 & n.10).

10

Herring’s claim for fraud did not accrue until he discovered the fraud, and United States Life

can rely on no alleged facts to pinpoint accrual at the time the fraud occurred, see supra p.

2. Ala. Code. § 6-2-3 (“In actions seeking relief on the ground of fraud where the statute has

created a bar, the claim must not be considered as having accrued until the discovery by the

aggrieved party of the fact constituting the fraud, after which he must have two years within

which to prosecute his action.”). Because United States Life has not met its burden of

showing, based on Herring’s allegations, that the statute of limitations has run, the court

cannot find at this stage that the statute of limitations bars this counterclaim. 

Counterclaim Three: Reckless/Mistaken Misrepresentation/Suppression

Herring’s third counterclaim is apparently for reckless and mistaken

misrepresentation. (See Answer, 6 ¶¶ 11-13.) The only difference between willful and

reckless misrepresentation is the state of mind (“willfully to deceive”or “recklessly without

knowledge,” § 6-5-101), and Herring has alleged recklessness (Answer, 6 ¶ 12). “Conditions

of a person’s mind may be alleged generally,” Fed. R. Civ. P. 9(b), and Herring incorporated

the facts sufficient for fraudulent misrepresentation and suppression in prior counterclaims,6

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 10 of 18
 Because the court has already dismissed counterclaim four, the court’s promissory fraud 7

analysis is relevant only to counterclaims one through three. 

11

see supra pp. 6-9. Yet Herring’s third counterclaim cannot stand for the reasons laid out in

the consolidated discussion of the promissory fraud challenge. See infra pp. 11-14.

Counterclaim Four: Negligent/Wanton Failure to Procure Insurance Coverage

Herring’s fourth counterclaim is due to be dismissed for failure to state a claim. He

alleges negligent or wanton failure to procure insurance coverage (Answer, 6 ¶ 15), but as

United States Life explains (Pl.’s Mem. in Supp. of Mot. to Dismiss, 11-12), this cause of

action “is not an action based on contract between the insured and the insurance company,

but an action based on an agency relationship between the insured and the agent who

represents the insurance company,” Armstrong v. Life Ins. Co. of Va., 454 So. 2d 1377, 1379

(Ala. 1984), overruled on other grounds, Hickox v. Stover, 551 So. 2d 259, 264 (Ala. 1989).

Herring’s fourth counterclaim fails because he cannot allege this cause of action against the

insurance company alone; no agent is a co-defendant in the case.

Counterclaims One through Four: Promissory Fraud Challenge

United States Life argues in its reply that Herring’s fraud-based counterclaims – one

through four – in the best case scenario, are claims for promissory fraud. (Pl.’s Reply, 2 & 7

n.1.) Under this theory, Herring must allege, which he has not, that at the time of the

statements, United States Life “had the intention not to perform the act promised and

possessed an[] intent to deceive.” (Pl.’s Reply, 2-3.) Herring argues, however, that in

Allstate Insurance Co. v. Hilley, 595 So. 2d 873 (Ala. 1992), the Supreme Court of Alabama

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 11 of 18
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held that representations about an insurance policy were not promises to act in the future but

“pertained to [the insurer’s] obligations under the insurance policy” (Def.’s Surreply, 2). In

Hilley, the court held that Allstate’s agent’s statement that Allstate would rebuild the house,

replace the house, or pay a certain amount if a fire destroyed the insureds’ house “[was] a

representation of the insurance coverage that the [insureds] were purchasing. The statement

was not a promise to act in the future. It was, rather, represented to the [insureds] as a

present fact of Allstate’s obligations under the insurance policy.” Hilley, 595 So. 2d at 876.

The court agrees that Hilley supports Herring’s argument; counterclaims regarding

misrepresentations and omissions about the insurance policy’s coverage do not fall under

promissory fraud, id. 

United States Life is correct that “a party experiencing a failure to perform a contract

in the typical situation cannot characterize the other party’s promise to perform as a

misrepresentation and thereby convert the action to one based upon a tort of fraud.” (Pl.’s

Reply, 2.) But representations outside of the contract terms can be a basis for tort claims.

Exxon Mobil Corp. v. Alabama Department of Corrections and Natural Resources discusses

this distinction:

We analyze the circumstances governing the availability of a remedy

in tort between parties to a contract by first noting the long-standing rule

applicable to fraudulent conduct during negotiations, an interval that

concludes when the parties strike their bargain and enter into a contract. A

party who has been the victim of a misrepresentation of a material fact or the

suppression of a material fact when there is a duty to speak upon which it

reasonably relied during negotiations can claim fraud in the inducement. See,

e.g., Lacey v. Edmunds Motor Co., 269 Ala. 398, 402, 113 So.2d 507, 510

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 12 of 18
13

(1959) (“It is a well-established principle in Alabama that a buyer alleging that

he was induced by fraud to enter into a contract may rescind by restoring

benefits and recover payments, or affirm, retain benefits, and sue in deceit for

damages . . . .”). In such cases, the aggrieved party, in effect, says, “I would

never have entered into the contract if you had not induced me to do so by

incorrect statements or omissions of material facts.” Regardless of whether the

remedy is rescission or deceit, a plaintiff can recover punitive damages when

the conduct was reckless or intentional. See Old Southern Life Ins. Co. v.

Woodall, 295 Ala. 235, 326 So. 2d 726 (1976) (action in deceit for damages);

and Mid-State Homes, Inc. v. Johnson, 294 Ala. 59, 311 So. 2d 312 (1975)

(action for rescission). . . . 

After becoming bound to the terms of a contract, subsequent events can,

but as a general rule do not, give rise to a remedy in tort. Failed expectations

as to performance of a contract usually result only in a remedy for breach of

contract. See C & C Prods., Inc. v. Premier Indus. Corp., 290 Ala. 179, 186,

275 So. 2d 124, 130 (1974) (“A mere failure to perform a contract obligation

is not a tort, and it furnishes no foundation for an action on the case.”). Thus,

a party experiencing a failure to perform a contract in the typical situation

cannot characterize the other party’s promise to perform as a misrepresentation

and thereby convert the action to one based upon the tort of fraud. However,

if a promise to perform in the future is made with no intention to perform at

the time the promise was made, it is promissory fraud and will give rise to an

action in tort for which compensatory and punitive damages may be recovered.

Kennedy Elec. Co. v. Moore-Handley, Inc., 437 So. 2d 76 (Ala. 1983). Such

a claim is difficult to prove, because mere failure to perform is not evidence

of a lack of intent to perform at the time the contract was formed. Campbell

v. Naman's Catering, Inc., 842 So. 2d 654 (Ala. 2002) (summary judgment in

favor of employer). 

 

Exxon Mobil Corp. v. Ala. Dep’t of Corr. & Natural Res., 986 So. 2d 1093, 1129-30 (Ala.

2007) (Lyons, J., concurring). Because Herring claims that he entered into the contract based

upon United States Life’s representations or omissions, his counterclaims allege

misrepresentation, not veiled contract claims (Answer, 4 ¶ 1; see also Answer, 5-6 ¶ 9; Def.’s

Resp., 2 (“Based upon these representations, [Herring] purchased and maintained the

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 13 of 18
14

disability insurance policy.”).) The allegation suggests that the representations were

antecedent to the contract. 

Herring’s allegations ultimately fail, however, because they are not sufficiently

detailed under Rule 9. He has provided no information about the source or details of the

misrepresentations beyond the fact that United States Life generally presented them, or about

when and how they were made. (See, e.g., Pl.’s Mem. in Supp. of Mot. to Dismiss, 6 (“In

raising that claim, Defendant must disclose precisely what allegedly fraudulent statements

were made, when they were made, where they were made, and who made them.”).) Nor has

Herring described, even minimally, what omissions he claims are required outside of those

in the contract. Only if Herring pleads such allegations with more specificity will the court

be assured that these counterclaims indeed allege fraudulent misrepresentations rather than

disguised breach of contract claims. For these reasons, the court will dismiss Herring’s first,

second and third counterclaims, with leave to replead with sufficient particularity under Rule

9(b). 

Counterclaim Five: Breach of Contract

Herring’s fifth counterclaim is for breach of contract. (Answer, 7 ¶ 18.) United States

Life asks the court to dismiss this counterclaim as redundant. (Pl.’s Mem. in Supp. of Mot.

to Dismiss, 12 (describing the counterclaim as “unnecessarily duplicat[ing] claims already

before [the] [c]ourt”).) Similar cases, however, have proceeded in this circuit without

dismissal of such counterclaims. See, e.g., Mega Life & Health Ins. Co. v. Pieniozek, 516

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 14 of 18
See also Quanta Specialty Lines Ins. Co. v. Investors Capital Corp., No. 06 CIV. 4624, 2008 8

WL 1910503, at *6 (S.D.N.Y. Apr. 30, 2008) (“In declaratory judgment actions brought by insurers,

courts in [that] district routinely allow an insured to assert counterclaims for . . . breach of contract.”).

15

F.3d 985, 988 (11th Cir. 2008) (insurance company brought suit for declaratory judgment on

a policy because of insured’s alleged misrepresentations and insured counterclaimed for

breach of contract and bad faith); Allstate Ins. Co. v. James, 845 F.2d 315, 316 (11th Cir.

1988) (case where insurance company filed complaint for declaratory judgment that policy

was null and void and insured counterclaimed for breach of contract and bad faith). If a 8

counterclaim “merely restates the issues as a ‘mirror image’ to the complaint, the

counterclaim serves no purpose,” Fed. Deposit Ins. Corp. v. Project Dev. Corp., No. 86-

5490, 1987 WL 37488, at *3 (6th Cir. May 27, 1987), but the court declines to find that the

breach of contract issues mirror those for declaratory relief and rescission. The court elects

to retain the claim, and United States Life has provided no authority to decide otherwise. 

Counterclaim Six: Abnormal Bad-Faith Refusal to Pay (Created a Debatable Reason) 

Herring and United States Life disagree about what the sixth counterclaim alleges. 

Incorporating all prior paragraphs, Herring alleges that United States Life was “under a duty

to use good faith in handling [his] claim,” that it “intentionally and in bad faith failed and

refused to pay benefits due under the [] policy of insurance by manufacturing a reason not

to pay [the] benefits,” and that Herring was injured as a result. (Answer, 7 ¶¶ 20-23.) United

States Life categorizes those allegations as a “normal” refusal to pay claim, as opposed to an

“abnormal” refusal, and argues that the complaint on its face renders it impossible for

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 15 of 18
16

Herring to claim one of the elements of a normal refusal claim, “the absence of any

reasonably legitimate or arguable reason for that refusal.” (Pl.’s Mem. in Supp. of Mot. to

Dismiss, 12-13.) Herring in his response argues that his claim was instead a claim for

abnormal bad-faith refusal. (Def.’s Resp., 6.) 

The allegations in the sixth counterclaim track an abnormal refusal claim, which

requires a showing that the insurer “(1) intentionally or recklessly failed to investigate the

plaintiff’s claim; (2) intentionally or recklessly failed to properly subject the plaintiff’s claim

to a cognitive evaluation or review; (3) created its own debatable reason for denying the

plaintiff’s claim; or (4) relied on an ambiguous portion of the policy as a lawful basis to deny

the plaintiff’s claim.” State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293 (Ala. 1999). The

manufacturing a reason allegation tracks the third type of abnormal refusal claim – one for

creating a debatable reason for denying the claim. Herring says nothing about the other

elements of a normal claim refusal, such as the absence of a reasonably legitimate reason for

the refusal of the claim. United States Life reads that silence as failing to state a normal

refusal claim, but the court reads the allegations as sufficient to state a claim under an

abnormal refusal theory. (See Def.’s Resp., 5-6.) 

Counterclaim Seven: Abnormal Bad-Faith Refusal to Pay (Failed to Investigate)

Herring’s seventh and final counterclaim alleges a different type of abnormal badfaith refusal case, a claim for failing to investigate Herring’s claim (Answer, 8 ¶ 25). See

supra (describing bad-faith refusal claims). Bad-faith refusal claims for failure to investigate

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 16 of 18
 United States Life encourages the court to consider papers it attached to its motion to dismiss 9

without converting it into a summary judgment motion. (See Pl.’s Mem. in Supp. of Mot. to Dismiss, 2

n.1.) It would be the same result with or without consideration of those papers based on the allegations. 

17

require proof “(1) that the insurer failed to properly investigate the claim or to subject the

results of the investigation to a cognitive evaluation and review and (2) that the insurer

breached the contract for insurance coverage with the insured when it refused to pay the

insured’s claim.” Slade, 747 So. 2d at 318. United States Life claims that it has not denied

Herring’s claim but has rescinded his policy. (Pl.’s Mem. in Supp. of Mot. to Dismiss, 15.)

According to papers United States Life voluntarily submitted with its motion to dismiss,9

however, United States Life did deny Herring’s claim. (See Pl.’s Mot to Dismiss Ex. D

(Letter dated Dec. 6, 2007, informing Herring that his disability claim was denied).) United

States Life also rescinded the policy. At the motion to dismiss stage, it appears the rescission

of the policy may be the justification for denying the claim, but the claim was denied

nonetheless.

Summary

The renewed motion to dismiss is granted and dismissal without prejudice is

warranted with respect to counterclaims one through three, with leave to replead, and with

respect to counterclaim four. The parties are reminded, however, that the standard of review

on a Rule 12(b)(6) motion to dismiss does not address the merits of those or the remaining

counterclaims. 

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 17 of 18
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V. CONCLUSION 

For the foregoing reasons, it is ORDERED that Defendant United States Life’s

renewed motion to dismiss (Doc. # 39) is DENIED in part and GRANTED in part as follows:

(1) The motion to dismiss is DENIED with respect to counterclaims five through

seven.

(2) The motion to dismiss is GRANTED with respect to counterclaims one through

three. Counterclaims one through three are DISMISSED without prejudice, and Herring is

GRANTED leave to amend those counterclaims on or before November 24, 2008.

(3) The motion to dismiss is GRANTED with respect to counterclaim four.

Counterclaim four is DISMISSED without prejudice.

DONE this 14th day of November, 2008.

 /s/ W. Keith Watkins 

UNITED STATES DISTRICT JUDGE

Case 3:07-cv-01071-WKW-SRW Document 52 Filed 11/14/08 Page 18 of 18