Franklin County Commission v. Madden

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ALABAMA

NORTHWESTERN DIVISION

FRANKLIN COUNTY )

COMMISSION, )

)

Plaintiff, )

)

vs. ) Civil Action No. 3:19-CV-0230-CLS

)

CRISTA MADDEN, et al., )

)

Defendants. )

MEMORANDUM OPINION

Plaintiff, the Franklin County Commission (“the Commission”), asserts claims

for breach of contract and fraudulent suppression against defendant Lafayette

Insurance Company (“Lafayette”), arising from Lafayette’s failure to pay a claim

under a policy covering employee theft.1 The case is before the court on Lafayette’s

motion to dismiss those claims pursuant to Federal Rule of Civil Procedure 12(b)(6),

for failure to state a claim upon which relief can be granted.2 Upon consideration of

the complaint, Lafayette’s motion, plaintiffs’ response,3 Lafayette’s reply,4 plaintiff’s

1 See doc. no. 1-1 (Complaint). The complaint was filed in state court but removed here by

Lafayette. Doc. no. 1 (Notice of Removal). Plaintiff’s complaint asserted other claims against other

defendants, but only the claims against Lafayette are addressed in this opinion.

2 Doc. no. 32.

3 Doc. no. 39 (Plaintiff’s Objection and Response to Defendant Lafayette Insurance

Company’s Motion to Dismiss).

4 Doc. no. 53 (Defendant Lafayette Insurance Company’s Reply to Plaintiff’s Response to

its Motion to Dismiss).

sur-reply,5 and oral arguments of counsel, the court concludes that the motion should

be granted.

I. STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b) permits a party to move to dismiss a

complaint for, among other reasons, “failure to state a claim upon which relief can be

granted.” Fed. R. Civ. P. 12(b)(6). This rule must be read together with Rule 8(a),

which requires that a pleading contain only a “short and plain statement of the claim

showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). While that

pleading standard does not require “detailed factual allegations,” Bell Atlantic Corp.

v. Twombly, 550 U.S. 544, 550 (2007), it does demand “more than an unadorned, the-

defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (citations omitted). As the Supreme Court stated in Iqbal:

A pleading that offers “labels and conclusions” or “a formulaic

recitation of the elements of a cause of action will not do.” [Twombly,

550 U.S., at 555]. Nor does a complaint suffice if it tenders “naked

assertion[s]” devoid of “further factual enhancement.” Id., at 557.

To survive a motion to dismiss founded upon Federal Rule of

Civil Procedure 12(b)(6), [for failure to state a claim upon which relief

can be granted], a complaint must contain sufficient factual matter,

accepted as true, to “state a claim for relief that is plausible on its face.”

Id., at 570. A claim has facial plausibility when the plaintiff pleads

factual content that allows the court to draw the reasonable inference

5 Doc. no. 54 (Plaintiff’s Sur-Reply Brief to Defendant Lafayette Insurance Company’s

Additional Submissions to Their Motion to Dismiss).

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that the defendant is liable for the misconduct alleged. Id., at 556. The

plausibility standard is not akin to a “probability requirement,” but it

asks for more than a sheer possibility that a defendant has acted

unlawfully. Ibid. Where a complaint pleads facts that are “merely

consistent with” a defendant’s liability, it “stops short of the line

between possibility and plausibility of ‘entitlement to relief.’” Id., at

557 (brackets omitted).

Two working principles underlie our decision in Twombly. First,

the tenet that a court must accept as true all of the allegations contained

in a complaint is inapplicable to legal conclusions. Threadbare recitals

of the elements of a cause of action, supported by mere conclusory

statements, do not suffice. Id., at 555 (Although for the purposes of a

motion to dismiss we must take all of the factual allegations in the

complaint as true, we “are not bound to accept as true a legal conclusion

couched as a factual allegation” (internal quotation marks omitted)).

Rule 8 marks a notable and generous departure from the hyper-technical,

code-pleading regime of a prior era, but it does not unlock the doors of

discovery for a plaintiff armed with nothing more than conclusions.

Second, only a complaint that states a plausible claim for relief survives

a motion to dismiss. Id., at 556. Determining whether a complaint

states a plausible claim for relief will, as the Court of Appeals observed,

be a context-specific task that requires the reviewing court to draw on

its judicial experience and common sense. 490 F.3d, at 157-158. But

where the well-pleaded facts do not permit the court to infer more than

the mere possibility of misconduct, the complaint has alleged — but it

has not “show[n]” — “that the pleader is entitled to relief.” Fed. Rule

Civ. Proc. 8(a)(2).

In keeping with these principles a court considering a motion to

dismiss can choose to begin by identifying pleadings that, because they

are no more than conclusions, are not entitled to the assumption of truth.

While legal conclusions can provide the framework of a complaint, they

must be supported by factual allegations. When there are well-pleaded

factual allegations, a court should assume their veracity and then

determine whether they plausibly give rise to an entitlement to relief.

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Iqbal, 556 U.S. at 678-79 (emphasis supplied, second and fourth alterations in

original, other alterations supplied).

II. ALLEGATIONS OF PLAINTIFF’S COMPLAINT AND RELEVANT

POLICY LANGUAGE

Lafayette issued policy number 60346212 (“the policy”) to the Commission,

covering employee theft during the policy period from April 1, 2014, to the same date

in calendar year 2015.6 The policy states that:

Coverage is provided under the following Insuring Agreements for

which a Limit of Insurance is shown in the Declarations and applies to

loss that you sustain resulting directly from an “occurrence” taking place

during the Policy Period shown in the Declarations, . . . which is

“discovered” by you during the Policy Period shown in the Declarations

or during the period of time provided in the Extended Period To Discover

Loss Condition . . . :

1. Employee Theft

We will pay for loss of or damage to “money,” “securities” and

“other property” resulting directly from “theft” committed by an

“employee,” whether identified or not, acting alone or in collusion with

other persons.

For the purposes of ths Insuring Agreement, “theft” shall also

include forgery.

Doc. no. 1-5 (Policy), at ECF 5, § A(1) (boldface emphasis in original, ellipses

6 Doc. no. 1-5 (Policy), at ECF 3.

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supplied).7 The policy defines the term “occurrence” as meaning:

(1) An individual act;

(2) The combined total of all separate acts whether or not related;

or

(3) A series of acts whether or not related; committed by an

“employee” acting alone or in collusion with other persons, during the

Policy Period shown in the Declarations . . . .

Id. at ECF 19, § F(14)(a) (ellipsis supplied). The terms “discover” and “discovered”

are defined as meaning

the time when you first become aware of facts which would cause a

reasonable person to assume that a loss of a type covered by this

insurance has been or will be incurred, regardless of when the act or acts

causing or contributing to such loss occurred, even though the exact

amount or details of loss may not then be known.

Id. at ECF 17, § F(4). The “Extended Period to Discover Loss Condition” referenced

in the first policy provision quoted above is defined as follows:

We will pay for loss that you sustained prior to the effective date

of cancellation of this insurance, which is “discovered” by you:

(1) No later than 1 year from the date of that cancellation.

However, this extended period to “discover” loss terminates

immediately upon the effective date of any other insurance

obtained by you, whether from us or another insurer,

7 A district court may consider a document outside the pleadings without converting a motion

to dismiss into one for summary judgment “if the attached document is (1) central to the plaintiff’s

claim and (2) undisputed.” Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005). Here, plaintiff’s

claim is founded completely upon the language of the policy, and plaintiff has not disputed the

authenticity of the policy.

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replacing in whole or in part the coverage afforded under

this insurance, whether or not such other insurance provides

coverage for loss sustained prior to its effective date.

Id. at ECF 10, § E(1)(g)(1).

Over a period of approximately ten years, beginning either in 2007 or 2008 and

extending into calendar year 2017, Crista Madden, a Commission employee, stole the

aggregate amount of $753,899.21 from the Franklin County Commission’s General

Fund, Franklin County’s Gas Tax Fund, and the Franklin County Commission’s Solid

Waste Fund.8 The Franklin County Commission filed a claim under the policy for

Madden’s theft on March 30, 2018; i.e., two years, eleven months, and thirty days after

April 1, 2015, the last date on which Lafayette’s policy with the Commission had been

in force and effect.9 The Commission’s “Liability Notice of Occurrence/Claim” form

stated:

On 2/07/2018 Insured found where a previous employee had been

taking money from their accounts. They had an audit done and since

December 2007 Crista Madden had been writing checks to vendors and

then changing the name on the check to her name after the checks were

signed. A total [of] around $753,000. Crista Madden has been arrested

and is out on bail at this time and has pled guilty to the charges. . . .

Doc. no. 1-2, at ECF 2 (alteration and ellipsis supplied).10

8 Doc. no. 1-1 (Complaint), ¶ 9.

9 Id. ¶ 17.

10 The court also can consider the notice of claim form without converting the motion to

dismiss into a motion for summary judgment. Plaintiff acknowledges in its complaint that it

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Lafayette denied the Franklin County Commission’s claim on June 4, 2018,

stating:

As the cancellation of your policy with Lafayette Insurance

Company took effect on 4/1/2015 and the loss was not discovered until

2018, the extended period of discovery expired upon your acquiring of

a replacement policy with another insurance carrier or on 4/1/2016,

whichever comes first. As such, we are unable to provide coverage for

this loss.

Doc. no. 1-4 (June 4, 2018 Denial Letter).11 See also doc. no. 1-1 (Complaint), ¶ 7.

III. DISCUSSION

A. Breach of Contract

The Commission’s breach of contract claim turns solely upon the legal question

of whether the terms of Lafayette’s policy require that company to pay the

Commission’s claim.12 There is no dispute that Crista Madden was an “employee”

submitted a notice of claim to Lafayette. Doc. no. 1-1 (Complaint), ¶ 17 (“Plaintiff properly

presented the theft claim of Crista Madden to Lafayette Insurance Company for payment.”).

Therefore, the notice of claim is central to plaintiff’s claim and undisputed. See supra, note 7.

11 The court also can consider the denial letter without converting the motion to dismiss into

a motion for summary judgment. Plaintiff’s breach of contract claim is based upon Lafayette’s

denial of the claim. See doc. no. 1-1 (Complaint), ¶ 18 (“Defendant Lafayette Insurance Company

has failed and refused to fully pay this claim.”). Therefore, the letter is central to plaintiff’s claim

and undisputed. See supra, note 7.

12 Despite arguing that discovery is necessary before deciding the breach of contract claim,

the Commission acknowledges that the inquiry is purely legal. See doc. no. 39 (Plaintiff’s Sur-Reply

Brief to Defendant Lafayette Insurance Company’s Additional Submissions to Their Motion to

Dismiss), at 10 (“The issue between Franklin County Commission and Lafayette Insurance Company

is whether or not the interpretation of the contract of Lafayette is correct or whether or not the

interpretation of the contract by Franklin County Commission is correct.”).

The Commission also argued in its first response brief that the court could not decide the

breach of contract claim on a motion to dismiss because Lafayette had not produced a complete copy

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covered under the policy, or that her actions constituted a “theft” of the Commission’s

“money,” “securities” or “other property” as defined by the policy. The only issue is

the legal question of whether the Commission discovered the loss within the period

dictated by the terms of Lafayette’s policy.

General contract principles govern the interpretation of insurance contracts. See

Twin City Fire Insurance Co. v. Alfa Mutual Insurance Co., 817 So. 2d 687, 691 (Ala.

2001) (citing Pate v. Rollison Logging Equipment, Inc., 628 So.2d 337 (Ala. 1993)).

Insurance companies are entitled to have their policy contract enforced

as written. Gregory v. Western World Ins. Co., 481 So.2d 878

(Ala.1985). “Insurance contracts, like other contracts, are construed so

as to give effect to the intention of the parties, and, to determine this

intent, a court must examine more than an isolated sentence or term; it

must read each phrase in the context of all other provisions.” Attorneys

Ins. Mut. of Alabama, Inc. v. Smith, Blocker & Lowther, P.C., 703 So.2d

866, 870 (Ala. 1996).

Twin City Fire Insurance, 817 So. 2d at 691-92. The court should assign policy terms

“their common, everyday meaning and interpret[] them as a reasonable person in the

insured’s position would have understood them.” Pharmacists Mutual Insurance Co.

v. Advanced Specialty Pharmacy LLC, 230 So. 3d 380, 387 (Ala. 2016) (citing State

of the contract. See id. at 7 (“In order for Defendant Lafayette Insurance Company to prevail on a

Motion to Dismiss for breach of contract, it must provide the entire contract. Defendant Lafayette

Insurance Company has not done so and therefore defendant’s motion to dismiss the breach of

contract claim should be denied on its face.”). The Commission later abandoned that argument. See

doc. no. 54 (Plaintiff’s Sur-Reply Brief to Defendant Lafayette Insurance Company’s Additional

Submissions to Their Motion to Dismiss), ¶ 1 (“Plaintiff no longer contends this was not a complete

copy of the policy and endorsements issued to Plaintiff Franklin County Commission.”).

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Farm Mutual Automobile Insurance Co. v. Brown, 26 So. 3d 1167, 1169-70 (Ala.

2009) (in turn citing Western World Insurance Co. v. City of Tuscumbia, 612 So. 2d

1159 (Ala. 1992), and St. Paul Fire & Marine Insurance Co. v. Edge Memorial

Hospital, 584 So. 2d 1316 (Ala. 1991))) (alteration supplied).

Lafayette’s policy clearly states that it only covers losses discovered either

during the policy period, or within one year after the policy is cancelled, unless the

Commission obtains another policy from a different insurer during that one-year

period (in which case the “extended period to ‘discover’ loss terminates immediately

upon the effective date of any other insurance obtained by [the Franklin County

Commission]”). Doc. no. 1-5 (Policy), at ECF 10, § E(1)(g)(1). Lafayette’s policy

insuring the commission for employee theft expired on April 1, 2015. The

Commission discovered Madden’s theft on February 7, 2018, almost three years later.

That was too late to satisfy the policy’s discovery requirements, so Lafayette was not

obligated to pay the Commission’s claim. The Commission’s arguments regarding the

reasons for cancelling Lafayette’s policy,13 and whether the policy covered more than

$100,000 in losses,14 are not relevant, because it is undisputed that the policy’s

13 See doc. no. 54 (Plaintiff’s Sur-Reply Brief to Defendant Lafayette Insurance Company’s

Additional Submissions to Their Motion to Dismiss), ¶ 3 (“Plaintiff . . . respectfully requests this

court to allow discovery as to who and why the policy issued to Plaintiff Franklin County

Commission, which provided multi-year coverage, was cancelled.”) (ellipsis supplied).

14 See doc. no. 39 (Plaintiff’s Sur-Reply Brief to Defendant Lafayette Insurance Company’s

Additional Submissions to Their Motion to Dismiss), at 5, 10.

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coverage lapsed on April 1, 2015.

B. Fraudulent Suppression

The Commission’s complaint also alleges that Lafayette “fraudulently

suppressed” the fact that the Commission “needed to purchase additional coverage to

continue to have employee theft coverage from the previous policies purchased from

Defendant Lafayette.”15 “The elements of a suppression claim are (1) a duty on the

part of the defendant to disclose facts; (2) concealment or nondisclosure of material

facts by the defendant; (3) inducement of the plaintiff to act; (4) action by the plaintiff

to his or her injury.” Aliant Bank, a Division of USAmeribank v. Four Star

Investments, Inc., 244 So. 3d 896, 930 (Ala. 2017) (citations and internal quotation

marks omitted). A claim for fraud, including fraudulent suppression, must be pleaded

with particularity under Federal Rule of Civil Procedure 9(b). See Fed. R. Civ. P. 9(b)

(“In alleging fraud or mistake, a party must state with particularity the circumstances

constituting fraud or mistake.”); Alabama Teachers Credit Union v. Design Build

Concepts, Inc., 334 F. Supp. 3d 1171, 1197-98 (N.D. Ala. 2018).

The Commission’s complaint falls far short of pleading its fraudulent

suppression claim with particularity. The Commission does not state that Lafayette

owed the Commission a duty to inform it of the need for additional coverage, or why.

15 Doc. no. 1-1 (Complaint), ¶ 37.

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Even if plaintiff had provided additional detail in its pleading, Alabama law makes it

clear that Lafayette owed no such duty. See Somnus Mattress Corp. v. Hilson, – So.

3d – , No. 1170250, 2018 WL 6715777, at *8-9 (Ala. Dec. 21, 2018) (holding that,

absent a special relationship, a separate agreement, additional compensation, or an

affirmative misrepresentation about the contents of the policy, an insurer or agent does

not have a duty to advise a client or potential client about the adequacy of coverage).

The existence of the duty cannot be based, as plaintiff seems to suggest, on Lafayette’s

vicarious liability for any alleged fraudulent suppression by defendant Debbie Thorn,16

because all claims against Ms. Thorn have been dismissed.17 Moreover, even though

the Commission generally alleges that Lafayette suppressed the fact that the

Commission needed to purchase additional coverage, it does not state with any detail

what additional coverage was available, or precisely those facts that Lafayette should

have disclosed about that additional coverage. The Commission also does not explain

what detrimental actions it took or refrained from taking, and it does not allege that

Lafayette’s inducement resulted in those actions or inactions.

In short, because plaintiff failed to state its claim for fraudulent suppression

16 See doc. no. 39 (Plaintiff’s Sur-Reply Brief to Defendant Lafayette Insurance Company’s

Additional Submissions to Their Motion to Dismiss), at 12 (“An insurance carrier could be

vicariously liable for the misconduct of Thorn thus be subject [sic] to the imposition of . . . damages

without evidence that it knew or should have known of the unfitness of its agent.”) (ellipsis in

original).

17 See doc. no. 31.

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with particularity, and because there are other legal bars to the viability of the claim,

the fraudulent suppression claim will be dismissed.

IV. CONCLUSION

The court concludes the Commission cannot state a viable claim against

Lafayette for breach of contract or fraudulent suppression. Lafayette’s motion to

dismiss will be granted, and the Commission’s claims against Lafayette for breach of

contract claim and fraudulent suppression will be dismissed with prejudice. An

appropriate order will be entered.

DONE this 30th day of August, 2019.

Vensod koh

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