Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_05-cv-00415/USCOURTS-azd-4_05-cv-00415-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Macaela Cashman,

Plaintiff, 

vs.

Nationwide Insurance Company of

America, Allied Insurance and AMCO

Insurance Co.,

Defendants. 

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CV 05-00415-TUC-RCC (JCG)

REPORT AND

RECOMMENDATION

Pending before the Court is the Motion to Dismiss Plaintiff's Class Action Complaint

filed by Defendants AMCO Insurance Company ("AMCO"), Nationwide Insurance

Company of America ("NICOA"), and Allied Property and Casualty Insurance, ("Allied")

(collectively, "Defendants") on August 3, 2005 (Doc. No. 9). Plaintiff Macaela Cashman

("Plaintiff") filed a response on September 12, 2005 (Doc. No. 19) and Defendants filed a

reply on October 3, 2005 (Doc. No. 22). Oral argument was heard on October 18, 2005.

Plaintiff asserts claims against Defendants for breach of contract and bad faith arising from

the alleged use of formula based utilization review processes by Defendants. Defendants

assert that Plaintiff's Complaint must be dismissed for failure to state a claim pursuant to

Rule 12(b)(6), Fed.R. Civ.P.

Pursuant to the Rules of Practice in this Court, the matter was assigned to Magistrate

Judge Guerin for a Report and Recommendation. The Magistrate Judge recommends the

District Court, after its independent review of the record, enter an Order granting in part and

denying in part Defendants' Motion.

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1

 On a motion to dismiss, the Court accepts the facts alleged in the Complaint as true. See

Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988).

2

Factual and Procedural Background

According to the Complaint, Plaintiff was injured in two automobile accidents that

occurred on January 22, 2003 and March 27, 2003.1

 (Complaint ¶¶ 5-6). At the time of the

accidents, Plaintiff was covered by a personal automobile insurance policy ("the Policy")

issued by Defendants. (Complaint ¶¶ 5-6). The Policy requires Defendants to "pay

reasonable expenses incurred for necessary medical and funeral services because of bodily

injury (1) caused by accident; and (2) sustained by an insured." (Complaint ¶4 and Ex. A).

Plaintiff sought reimbursement of her medical expenses from Defendants, but Defendants

refused to pay her medical providers' bills in full. (Complaint ¶ 10). Instead, Defendants

decreased the amounts owed to medical providers using a formula to determine a "usual and

customary" charge based on "prevailing billing practices" of other medical providers in the

same geographic area. (Complaint ¶ 10). As a result, Defendants failed to reimburse

Plaintiff for approximately $1,141.99 of her medical expenses incurred as a result of injuries

she sustained in the car accidents. By failing to pay the bills in full, Plaintiff claims,

Defendants breached their contractual obligations under the Policy and acted in bad faith.

(Complaint ¶¶ 34-42). Plaintiff anticipates representing a like class of affected insured.

(Complaint ¶¶ 18-33).

Plaintiff filed her Complaint against Defendants on May 23, 2005 in Pima County

Superior Court. Defendants removed the case to the United States District Court for the

District of Arizona and subsequently filed a joint motion to dismiss the Complaint pursuant

to Rule 12(b)(6). Defendants argue that the Complaint is deficient because it fails to specify

which claims are asserted against each discrete Defendant and that it fails to state a claim for

breach of contract or for bad faith. At oral argument, Defendants conceded that the Plaintiff

might be able to remedy some of these defects by amending the Complaint. 

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Standard of Review

Under Rule 12(b)(6), the Court can dismiss claims where Plaintiff has "fail[ed] to state

a claim upon which relief can be granted." Dismissal is appropriate "where there is no

cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal

theory." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A complaint should 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 his claim which would entitle him to relief." Balistreri v.

Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988) (quoting Conley v. Gibson, 355 U.S.

41, 78 S. Ct. 99 (1957)). 

Ordinarily, the Court may look only at the face of the complaint to decide a motion

to dismiss. See Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir.

2002). However, when a plaintiff has attached various exhibits to the complaint, those

exhibits may be considered in determining whether dismissal is proper without converting

the motion to one for summary judgment. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d

1480, 1484 (9th Cir. 1995); see also Fed.R.Civ.P. 12(b). 

Discussion

Defendants make three arguments in support of their 12(b)(6) motion: (1) Plaintiff

failed to specify what claims are asserted against each discrete Defendant; (2) Plaintiff failed

to state a claim for breach of contract; and (3) Plaintiff failed to state a claim for bad faith.

A. Failure to Specifically Assert Claims

Defendants allege that Plaintiff's Complaint fails to apprise each Defendant of the

specific claims against it, as required by Federal Procedure Rule 8(a)(2). See Conley v.

Gibson, 355 U.S. 41, 47 (1957) ("the Rules require ... '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"). Because Plaintiff refers to AMCO, Allied, and Nationwide as

"Defendants" instead of as separate legal entities, Defendants claim Plaintiff's Complaint

should be dismissed.

While the cases Defendants cite do state that corporations are separate legal entities,

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see Ferrarell v. Robinson, 11 Ariz.App. 473, 465 P.2d 610 (Ct. App. 1970) and Copperweld

Corp. v. Independence Tube Corp., 467 U.S. 752, 786 (1984), it does not follow that

corporations cannot be referred to as "defendants" because they are separate legal entities.

Plaintiff's Complaint, at a succinct eight pages, is not difficult to understand nor is it

unintelligible what counts are alleged against which defendant corporation. Plaintiff alleges

all counts against all three Defendants. Accordingly, the Complaint does sufficiently apprise

each Defendant of the claims against it.

B. Failure to State Claim for Breach of Contract

In order to state a claim for breach of contract, Plaintiff must allege the existence of

a contract, breach, and resulting damages. Clark v. Compania Ganadera de Cananea, S.A.,

95 Ariz. 90, 94, 387 P.2d 235, 238 (1963); Chartone, Inc. v. Bernini, 207 Ariz. 162, 170, 83

P.3d 1103, 1111 (App. 2004). Defendants allege Plaintiff fails to state a claim for breach of

contract because she has failed to allege a breach or injury. In addition, Defendants contend

that Plaintiff cannot state a claim for breach of contract against Allied or Nationwide because

Plaintiff has not alleged contractual privity with either entity.

1. Breach

The Policy requires only that Defendants "pay reasonable expenses incurred for

necessary medical ... services ...." Defendants assert that because Plaintiff failed to allege

that Defendants did not pay reasonable medical expenses, Plaintiff has not properly alleged

a breach.

A review of the Complaint indicates that Defendants are correct. Plaintiff has alleged

that the Policy requires Defendants to pay "reasonable expenses incurred within three years

from the date of an accident." (Complaint ¶ 4). Plaintiff does not allege anywhere in her

Complaint that the amount reimbursed by Defendants was not "reasonable." Instead,

Plaintiff alleges that Defendants breached the Policy by failing to pay the "full" amount.

(Complaint ¶ 10). Because, under the plain language of the Policy, Defendants were not

contractually required to pay the "full" amount of Plaintiff's medical expenses, Plaintiff has

not properly alleged a breach of the Policy.

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2. Injury 

Defendants further claim that Plaintiff has not properly alleged an injury, because she

has failed to allege that she paid the balance of the providers' charges, which Defendants

allegedly refused to pay. In her briefs and at oral argument, Plaintiff did not contend that her

Complaint was intended to allege that she has been billed for or has paid to the medical

providers those amounts that Defendants refused to reimburse. Instead, Plaintiff argues that

she is not required to allege actual payment or indebtedness in order to properly allege an

injury. This Court agrees with Plaintiff. Plaintiff may demonstrate that Defendants breached

their contract with Plaintiff if she can prove that they were contractually obligated to pay her

the medical expenses that she incurred, and that they failed to do so. See Samsel v. Allstate

Ins. Co., 204 Ariz. 1, 9, 59 P.3d 281, 289 (Ariz. 2002) (collecting cases holding that expenses

are actually incurred by an insured when he or she has become legally liable for them, even

when those expenses have been paid by others). Plaintiff is not required to demonstrate that

she has actually paid for her medical expenses, or even that the medical providers are seeking

such payment from her. See id. The Complaint specifically alleges that Plaintiff incurred

medical expenses as a result of the accidents, that those expenses should have been covered

under the language of her policy, that "Plaintiff requested payment from Defendants for the

billings from Dr. Roberts and Dr. Walter . . . [and that Defendants] refused to pay the full

amount." (Complaint ¶¶ 4-10). Assuming the amounts billed were reasonable expenses

covered by the policy, Plaintiff has properly alleged that she has been denied the benefit of

her bargain with Defendants. 

3. Proper Parties to the Breach of Contract Claim

Defendants allege that Plaintiff has failed to state a claim against Allied or Nationwide

because the Policy was only alleged to be a contract between Plaintiff and AMCO, not

Plaintiff and Allied or Nationwide. See Stratton v. Inspiration Consolidated Copper Co., 140

Ariz. 528, 530-31, 683 P.2d 327, 329-30 (App. 1984) (privity of contract is required in order

to state a claim for breach of contract). This Court finds that this argument must be rejected

with respect to Allied at this stage in the proceedings. Plaintiff's Complaint alleges that

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2

 The Court notes that Defendants relied upon the aggregate damages of Allied, AMCO and

Nationwide in order to secure the jurisdiction of the federal court under the Class Action Fairness Act. In

the event that Plaintiff elects not to amend her Complaint to properly allege claims against Nationwide,

Plaintiff may have grounds to file a motion for remand of this action to the state court.

6

"Defendants' motor vehicle policy" is attached to the Complaint, and the accompanying

exhibit includes various documents suggesting that the Policy could have been issued by

AMCO or Allied. Although the cover page of the Policy is captioned "AMCO Insurance

Company," the Policy is accompanied by a letter that reads "Thank you for selecting Allied

Insurance," "Allied is committed to providing you high quality insurance," "Allied has

provided reliable, affordable insurance protection," "If you have any questions ... contact you

Allied agent," and "review you policy ... online at myAlliedPolicy.com." The insurance

cards issued to Plaintiff were labeled with the Allied logo. Most importantly, the Policy is

signed by representatives of AMCO and Allied. While Defendants may be able to ultimately

prove that Plaintiff had no contract with Allied, the issue is better left to summary judgment

proceedings, after the parties have had the opportunity to exchange disclosures and engage

in discovery.

Plaintiff has failed to allege, however, sufficient facts to support a breach of contract

claim against Nationwide. Although Plaintiff alleges that the Policy was issued by all three

Defendants, the policy attached to the Complaint does not support that claim. Nationwide

is not mentioned in the Policy. The only reference to Nationwide anywhere in the exhibit

is in the letterhead to the cover letter for the Policy, which states only that Allied Insurance

is "a member of Nationwide Insurance." 

Plaintiff argues that Nationwide may nonetheless be named as a Defendant under the

"juridical link" exception, wherein a class claim is allowed to extend beyond the specific

entity that injured the named plaintiff if the defendants are related by a concerted scheme.

See Payton v. County of Kane, 308 F.3d 673, 678-80 (7th Cir. 2002). The Complaint,

however, does not include allegations from which the Court can infer a concerted scheme

among the Defendants, and therefore the juridical exception cannot be applied to prevent

Nationwide's dismissal.2

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C. Failure to State a Bad Faith Claim

Defendants contend that Plaintiff has failed to state a claim for bad faith because she

has not met the minimal pleading requirements.

In order to state a claim for bad faith, Plaintiff must demonstrate that Defendants acted

unreasonably and that they either knew their conduct was unreasonable or acted with such

reckless disregard that such knowledge can be imputed to Defendants. See Deese v. State

Farm Mut. Auto Ins. Co., 172 Ariz. 504, 507, 838 P.2d 1265, 1268 (1992). Plaintiff's

Complaint does not include specific allegations with respect to her claim for bad faith.

Instead, Plaintiff's claim states "Count Two: Bad Faith" and then incorporates by reference

the other allegations of the Complaint. (Complaint ¶¶ 39-42). A review of the allegations

in the Complaint, however, indicates that the elements of Plaintiff's bad faith claim can be

inferred from the facts alleged. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th

Cir.1986) (stating that the Court must accept as true the factual allegations of the complaint

and indulge all reasonable inferences to be drawn from them, construing the complaint in the

light most favorable to the plaintiff). 

Plaintiff has alleged that Defendants acted unreasonably. Plaintiff claims that

Defendants' reductions "were not based upon an individualized review or consideration of

Plaintiff's individual medical condition, of Dr. Roberts' and Dr. Walters' qualifications, or of

the actual treatment and services they provided to Plaintiff. Rather, the reductions were

determined by a computerized utilization review program designed to categorize similar

medical treatment, and apply coded reductions based upon a mathematical comparison to a

predetermined rate for the assigned category of treatment." (Complaint ¶ 13). This

allegation implies that Plaintiff believes it to be unreasonable for Defendants to determine

reimbursement using a computer program, as opposed to an actual review of Plaintiff's

situation. In addition, Plaintiff alleges that Defendants' computerized utilization reduction

program resulted in a $60.00 bill being reduced by Defendants to $59.59. (Complaint ¶ 11).

The obvious implication of this allegation is that Defendants are acting unreasonably in

agreeing to reimburse all but $0.41 of a $60.00 claim. Plaintiff has also specifically alleged

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that Defendants acted with intent. (Complaint ¶ 42). Accordingly, Plaintiff has sufficiently

stated a claim for bad faith such that Defendants are on notice of the nature of the claim.

The Court notes, however, that although Plaintiff's bad faith claim is fairly stated, it

has only been properly alleged against Allied and AMCO. Because, as explained above,

Plaintiff has failed to properly allege that Nationwide was a party to the Policy, Plaintiff has

failed to state a claim against Nationwide for bad faith.

D. Leave to Amend

The Ninth Circuit has adopted a policy of liberally granting leave to amend a

complaint dismissed on a 12(b)(6) motion. See, e.g., Breier v. Northern Cal. Bowling

Proprietors' Ass'n, 316 F.2d 787 (9th Cir. 1963). At oral argument, Defendants conceded that

the Plaintiff might be able to remedy some of these defects by amending the Complaint, and

this Court agrees. Accordingly, the Magistrate Judge recommends dismissing the Complaint

without prejudice and granting Plaintiff leave to amend the Complaint. 

Recommendation

The Magistrate Judge recommends the District Court, after its independent review of

the record, enter an order

GRANTING in part and denying in part Defendants' Motion to Dismiss(Doc. No. 9);

GRANTING Defendant's Motion to Dismiss Count One of the Complaint (breach of

contract claim);

GRANTING Defendant's Motion to Dismiss Nationwide Insurance as a Defendant;

DENYING Defendant's Motion to Dismiss Count Two of the Complaint (bad faith

claim); and

GRANTING Plaintiff leave to amend the Complaint.

Pursuant to 28 U.S.C. § 636(b), any party may serve and file written objections within

10 days of being served with a copy of this Report and Recommendation. If objections are

not timely filed, they may be deemed waived. 

DATED this 8th day of March, 2006.

Case 4:05-cv-00415-RCC Document 26 Filed 03/09/06 Page 8 of 8