Ascent Hospitality Management Co LLC v. Employers Insurance Company of Wausau

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

ASCENT HOSPITALITY )

MANAGEMENT CO., LLC, )

)

Plaintiff, )

)

v. ) Case No. 2:20-cv-770-GMB

)

EMPLOYERS INSURANCE )

COMPANY OF WAUSAU, et al., )

)

Defendants. )

MEMORANDUM OPINION AND ORDER

Plaintiff Ascent Hospitality Management Co., LLC (“Ascent”) filed its

complaint alleging breach of contract and related torts against Defendants

Employers Insurance Company of Wausau (“Wausau”) and Liberty Mutual

Insurance Company (“LMIC”). Doc. 17. LMIC has filed a motion to dismiss all

counts alleged against it. Doc. 26. Wausau filed its own motion to dismiss Counts

IV and V. Doc. 27. The parties have consented to the jurisdiction of a United States

Magistrate Judge pursuant to 28 U.S.C. § 636(c). Doc. 19. The motions are fully

briefed and ripe for decision. Docs. 26, 27, 37, 38, 40 & 41. For the following

reasons, the motions are due to be granted in part and denied in part.

I. STANDARD OF REVIEW

In considering a motion to dismiss pursuant to Rule 12(b)(6) of the Federal

Rules of Civil Procedure, the court must “take the factual allegations in the

complaint as true and construe them in the light most favorable to the plaintiff.”

Pielage v. McConnell, 516 F.3d 1282, 1284 (11th Cir. 2008). To survive a motion

to dismiss, a complaint must include “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

is “plausible on its face” if “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, 556 U.S. 662, 678 (2009). The complaint “requires more

than labels and conclusions, and a formulaic recitation of the elements of a cause of

action will not do.” Twombly, 550 U.S. at 555. Factual allegations need not be

detailed, but “must be enough to raise a right to relief above the speculative level,”

id., and “unadorned, the-defendant-unlawfully-harmed-me accusation[s]” will not

suffice, Iqbal, 556 U.S. at 678.

II. FACTUAL BACKGROUND

This case centers on an insurance policy. Doc. 17 at 6. LMIC’s broker

marketed the policy to Ascent. Doc. 17 at 6. Based on LMIC’s representations as to

the terms of the proposed policy, Ascent believed that LMIC would be providing

insurance coverage under the policy either alone or in combination with other

insurers. Doc. 17 at 6. Ascent relied on those representations when it agreed to the

policy. Doc. 17 at 6.

The policy language also caused Ascent to believe that LMIC issued the

policy, either alone or in combination with Wausau. Doc. 17 at 7. The policy states

that Wausau is the “Company Providing Insurance,” Doc. 17 at 6, but the name

“Liberty Mutual Insurance” appears on page headers and footers throughout the

policy document. See, e.g., Doc. 17-1 at 2. The policy also lists “Company Contact

Information” for “Liberty Mutual Insurance.” Doc. 17 at 7; 17-1 at 4. And David H.

Long, who serves as the president of both Wausau and LMIC, signed the policy.

Docs. 17 at 7 & 17-1 at 5.

The policy provides broad coverage for losses unless the cause of the loss is

expressly excluded. Doc. 17 at 8. Specifically, the policy covers losses sustained by

Ascent due to the interruption of its business, civil or military orders that prohibit

access to covered locations, and the prevention of ingress or egress from covered

locations. Doc. 17 at 9. The policy does not exclude losses from pandemics or

government shutdowns due to the threat of a viral pandemic. Doc. 17 at 8. It also

does not exclude losses caused by viruses. Doc. 17 at 8. Its contamination exclusion

is vague, ambiguous, and does not apply to Ascent’s claim. Doc. 17 at 8.

In March 2020, the World Health Organization declared the COVID-19 virus

to be a global pandemic. Doc. 17 at 9. COVID-19 is a virus that can survive on

surfaces for at least 17 hours. Doc. 17 at 9–10. The characteristics of COVID-19

render property exposed to the virus potentially unsafe and dangerous. Doc. 17 at

10. Therefore, the presence or threatened presence of COVID-19 makes property

unusable and constitutes direct physical property loss or damage. Doc. 17 at 10. In

response to the pandemic, all five states in which Ascent owns hotels or restaurants

issued “Stay-at-Home” or “Shelter-in-Place” orders substantially limiting or

completely prohibiting the operation of Ascent’s businesses. Doc. 17 at 10. As a

result of these closure orders, Ascent has suffered covered losses expected to exceed

$40 million. Doc. 17 at 11.

In March 2020, Ascent submitted a claim to the defendants requesting

coverage for its business interruption losses. Doc. 17 at 11. The defendants assigned

Ascent a claim number and a claims adjuster employed by LMIC. Doc. 17 at 11.

Less than 48 hours after the initial notification of a claim, the claims adjuster issued

a Reservation of Rights Letter, which identified potential exclusions and previewed

an anticipated denial of the claim. Doc. 17 at 12. At that point, the defendants had

not materially investigated the claim. Doc. 17 at 12. The LMIC claims adjuster

signed the letter and used “Liberty Mutual Insurance” letterhead. Doc. 17-2 at 2.

The letter included a phone number for questions, and the voicemail message at that

number thanked callers for contacting “Liberty Mutual Commercial Insurance

Claims.” Doc. 17 at 12. The letter also indicated that “we” are investigating the

claim, apparently referencing LMIC and Wausau. Doc. 17 at 12.

In April 2020, the defendants issued a denial letter. Doc. 17 at 13. The LMIC

claims adjuster also signed this letter and used “Liberty Mutual Insurance”

letterhead. Doc. 17-3 at 2 & 6. The denial letter included a phone number, and the

voicemail message at that number referred to “Liberty Mutual Insurance.” Doc. 17

at 13. The letter again used the pronoun “we,” likely referring to both LMIC and

Wausau. Doc. 17 at 13. Based on these interactions and letters, LMIC appeared to

be handling the claim and to be responsible for the denial either in whole or in part.

Doc. 17 at 13.

III. DISCUSSION

Ascent brings claims for breach of contract, bad faith, fraudulent

misrepresentation, and fraudulent suppression. Doc. 17 at 15–23.1 LMIC seeks to

dismiss all claims against it, Doc. 26 at 15, while Wausau argues for the dismissal

of only the fraud claims. Doc. 27 at 1. The court addresses each of the pending

claims in turn.

A. Breach of Contract

As an initial matter, the policy states that “[t]he validity and interpretation of

this Policy shall be governed by . . . the laws of the State of New York.” Doc. 17-1

at 13. Alabama law recognizes and generally enforces choice-of-law provisions in

1 Ascent also seeks a declaratory judgment that its losses from COVID-19 are covered by the

policy and that the defendants must pay the full amount of past and future losses related to the

COVID-19 pandemic. Doc. 17 at 14–15. LMIC argues that this court cannot issue a declaratory

judgment if the breach of contract claim fails. Doc. 26 at 6. Because the court concludes that

Ascent has not stated a claim for breach of contract, LMIC’s motion to dismiss Count I for

declaratory judgment is due to be granted.

a contract. Cherry, Bekaert & Holland v. Brown, 582 So. 2d 502, 506 (Ala. 1991).

Therefore, the court will apply New York law when construing Ascent’s insurance

policy. Regardless, a breach of contract claim has the same basic elements in both

Alabama and New York: (1) an agreement between the parties, (2) performance by

one party, (3) breach of the agreement by the other party, and (4) damages resulting

from that breach. See St. Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 303 (Ala.

1999); Berman v. Sugo LLC, 580 F. Supp. 2d 191, 202 (S.D.N.Y. 2008). Ascent

alleges (1) that it had an insurance policy issued by both defendants, (2) that it

performed under the contract by complying with all applicable provisions and

paying premiums, (3) that the defendants breached the contract by denying coverage

for its business losses, and (4) that it has suffered damages resulting from the

defendants’ failure to cover these losses. Doc. 17 at 15–16.

LMIC contests only the first element and argues that it was not a party to the

contract with Ascent. Doc. 26 at 6. As LMIC points out, the policy identifies

Wausau as the “Company Providing Insurance.” Doc. 17-1 at 5. “Our duty to accept

the facts in the complaint as true does not require us to ignore specific factual details

of the pleading in favor of general or conclusory allegations. Indeed, when the

exhibits contradict the general and conclusory allegations of the pleading, the

exhibits govern.” Griffin Indus., Inc. v. Irvin, 496 F.3d 1189, 1205–06 (11th Cir.

2007).

Under New York law, the use of a parent company’s letterhead does not make

that company a party to its subsidiary’s contract. Am. Real Est. Holdings Ltd. P’ship

v. Citibank, N.A., et al., 844 N.Y.S.2d 288, 289 (N.Y. App. Div. 2007). In American

Real Estate Holdings, the plaintiff leased property to Citibank. Id. Citibank’s

correspondence with the plaintiff used the letterhead of Citibank’s parent

corporation. Id. But the court granted the parent company’s motion to dismiss,

finding that it was not a party to the lease because the letters specifically referenced

Citibank and defined the contracting party as Citibank. Id.

Similarly, Ascent’s allegations that LMIC was a party to the contract are

implausible in the face of the clear language of the policy. Ascent’s authority to the

contrary is nonbinding and distinguishable from the facts of this case. Relying on

Watkins Motor Lines, Incorporated v. Crum and Forster Insurance Company, 2006

WL 3328287 (M.D. Fla. Nov. 15, 2006), Ascent argues that the contract is

ambiguous as to whether LMIC is a contracting party because the name “Liberty

Mutual” appears on nearly every page of the policy in headers, footers, and logos.

Doc. 38 at 9–11. But the Watkins policy never defined the insurer’s identity.

Watkins, 2006 WL 3328287, at *6. Ascent’s policy designates Wausau as the

company providing insurance, Doc. 17-1 at 5, and nowhere refers to the entity

“Liberty Mutual Insurance Company.”

Ascent also relies on a pair of opinions for the proposition that a parent

company becomes a party to its subsidiary’s contract when it takes over the claim

handling process from the subsidiary. See McCarty v. Liberty Mut. Ins. Co., 2016

WL 8290131, at *5 (D. Wyo. Feb. 10, 2016); Derocher v. Zurich Am. Ins. Co., 2008

WL 4671754, at *4 (M.D. Pa. Oct. 16, 2008). Ascent has not alleged, however, that

LMIC and Wausau share a parent-subsidiary relationship, since the complaint

identifies them as sister companies both wholly owned by Liberty Mutual Group,

Inc. Doc. 17 at 5.

For these reasons, the court finds that Ascent’s pleadings, which incorporate

the policy,2 unambiguously show that LMIC is not a party to the contract. Therefore,

LMIC’s motion to dismiss Count II of the amended complaint is due to be granted.

B. Bad Faith

Both LMIC’s and Ascent’s arguments relating to the bad faith claim turn on

whether LMIC is a party to the insurance contract. Docs. 26 at 7 & 38 at 17. Georgia

law governs the bad faith claim because the denial letters were mailed to Ascent’s

headquarters in Georgia. See Docs. 17-2 at 2 & 17-3 at 2; Morse v. Life Ins. Co. of

N. Am., 399 F. Supp. 3d 1236, 1245–46 (N.D. Ala. 2019) (finding under Alabama

law that the law of the state where the denial letters were mailed governs a bad faith

2 Federal Rule of Civil Procedure 10(c) provides that an exhibit attached to a pleading becomes “a

part of the pleading for all purposes.” See Griffin Indus., Inc., 496 F.3d at 1206 (citing Associated

Builders, Inc. v. Ala. Power Co., 505 F.2d 97, 100 (5th Cir. 1974)). Ascent attached the policy to

its Amended Complaint. Doc. 17-1.

claim). Under Georgia law, only the insurer can be liable for bad faith refusal to pay

an insurance claim. Ga. Code Ann. § 33-4-6. Because the court finds that Ascent

has not plausibly alleged that LMIC is a party to the insurance contract, LMIC’s

motion to dismiss Count III of the amended complaint is due to be granted.

C. Fraudulent Misrepresentation

A federal court sitting in diversity must apply the choice-of-law rules of the

forum state. Glass v. S. Wrecker Sales, 990 F. Supp. 1344, 1347 (M.D. Ala. 1998).

Alabama courts “apply the law of the state where the injury occurred.” Id. (citing

Fitts v. Minn. Mining & Mfg. Co., 581 So. 2d 819, 820 (Ala. 1991)). When applying

this rule to fraud claims, the place where the injury occurred is “the state in which

the plaintiff suffered the economic impact.” Id. Ascent is a Georgia limited liability

company with its principal place of business in Georgia. Doc. 17 at 4. Therefore,

Georgia is where it would have experienced the financial effect of the defendants’

alleged fraud. See In re Verilink Corp., 405 B.R. 356, 365 (Bkr. N.D. Ala. 2009)

(finding that a company suffers financial harm in the state where its “primary assets

and headquarters” are located). All parties rely on Georgia law for their arguments

relating to Ascent’s fraud claims. See Docs. 26 at 10, 27 at 3, 37 at 5–6 & 38 at 19.

For these reasons, this court will look to Georgia law in analyzing Ascent’s fraud

claims.

Under Georgia law, the tort of fraudulent misrepresentation has five elements:

(1) the defendant made false representations; (2) the defendant knew the

representations were false at the time they were made; (3) the defendant made the

representations intending to deceive the plaintiff and induce him to act; (4) the

plaintiff justifiably relied upon the representations; and (5) the misrepresentations

resulted in damages. Clemons v. Delta Airlines, Inc., 790 S.E.2d 814, 817 (Ga. Ct.

App. 2016). However, under Georgia law, a “misrepresentation of the law is

ordinarily not actionable.” Saye v. UnumProvident Corp., 2006 WL 2850432, at *3

(N.D. Ga. Oct. 2, 2006). “A misrepresentation is one of law rather than fact where

‘the truth of the representations would depend upon the legal effect of the policy

provisions.’” Id. (quoting Seckinger-Lee Co. v. Allstate Ins. Co., 32 F. Supp. 2d

1348, 1353 (N.D. Ga. 1998)).

The majority of the fraudulent misrepresentations alleged in the complaint

concern the scope of the policy. See Doc. 17 at 17. These representations are not

actionable under Georgia law in as much as they relate solely to the extent of the

coverage under the terms of the policy and therefore are, at most, misrepresentations

of law. See Saye, 2006 WL 2850432, at *3 (granting motion to dismiss when

defendant gave “allegedly erroneous advice” about what the policy would cover at

the time it was purchased). However, Ascent alleges one misrepresentation that does

not concern the legal effect of the policy: “Should Plaintiff need to make a claim for

such losses, Defendants would promptly pay such a claim in accordance with the

Policy.” Doc. 17 at 18. The court finds that this statement is a representation of fact

and therefore that it could be an actionable misrepresentation.

LMIC and Wausau also argue that Ascent’s fraud claims fail to meet Federal

Rule of Civil Procedure 9(b)’s particularity requirement. Docs. 26 at 13 & 27 at 4.

Rule 9(b) requires a plaintiff to “state with particularity the circumstances

constituting fraud.” The purpose of the rule is to alert defendants to the “precise

misconduct with which they are charged.” Ziemba v. Cascade Int’l Inc., 256 F.3d

1194, 1202 (11th Cir. 2001) (internal citations omitted). The rule is satisfied if the

complaint sets forth (1) what statement was made, (2) the time and place of the

statement and the person who made it, (3) the content of the statement and how it

misled the plaintiff, and (4) what the defendant obtained from the fraud. Id. (internal

citations omitted). But these requirements may be relaxed somewhat when “this

factual information is peculiarly within the defendant’s knowledge or control.”

U.S. ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Blue Cross Blue Shield of

Ga., Inc., 755 F. Supp. 1040, 1052 (S.D. Ga. 1990).

Ascent pleads its fraudulent misrepresentation claim with sufficient

particularity. The amended complaint describes a specific actionable misleading

statement, alleges that an LMIC employee made the statement at the time Ascent

initially procured the policy or when it was renewed for the purpose of inducing

Ascent to purchase the policy, and alleges that the defendants never intended to fulfil

their obligations under the policy. Doc. 17 at 18–19. Ascent also alleges that the

LMIC employee acted on behalf of LMIC, Wausau, or both entities. Doc. 17 at 18.

In light of Ascent’s allegation that LMIC performs the day-to-day operations of

Wausau (Doc. 17 at 5), the court may reasonably infer that the relevant LMIC

employee acted on behalf of LMIC and Wausau when making the misrepresentation.

Ascent has not alleged the identity of the employee who made the misrepresentation

but argues that it cannot do so because only LMIC has access to that information.

Doc. 37 at 10. Together, these allegations are enough to put the defendants on notice

of the precise misconduct at issue.

Finally, Ascent argues for the first time in its reply brief that its fraudulent

misrepresentation claim against LMIC has an alternative basis if LMIC succeeds in

showing that it was not a party to the policy. Doc. 38 at 20. In that case, Ascent

would argue that LMIC made false representations that it would provide insurance

coverage when it ultimately did not do so. Doc. 38 at 20. But Count IV of Ascent’s

amended complaint does not include this claim in its list of misrepresentations. Doc.

17 at 17. The amended complaint refers to this representation elsewhere but does

not describe it as false. Doc. 17 at 6. Quite the opposite—Ascent alleges throughout

its complaint that LMIC is one of the companies providing coverage. If Ascent

wishes to allege in the alternative that LMIC falsely represented that it would be one

of the companies providing coverage, it must seek leave to amend its complaint to

do so. See Halbert v. Credit Suisse AG, 402 F. Supp. 3d 1288, 1309 n.6 (N.D. Ala.

2019).

Ascent has plausibly alleged one factual misrepresentation made by an LMIC

employee on behalf of LMIC and Wausau. Therefore, the defendants’ motions to

dismiss Count IV are due to be denied as to this misrepresentation, but granted as to

the remaining alleged misrepresentations.

D. Fraudulent Suppression

“Suppression of a material fact which a party is under an obligation to

communicate constitutes fraud. The obligation to communicate may arise from the

confidential relations of the parties or from the particular circumstances of the case.”

Ga. Code Ann. § 23-2-53; Fanelli v. BMC Software, Inc., 2013 WL 12190241, at

*10 (N.D. Ga. July 29, 2013) (quoting Williams v. Dresser Indus., Inc., 120 F.3d

1163, 1167 (11th Cir. 1997)). “Georgia law is very clear that no confidential or

fiduciary relationship exists between an insured and the insurer and its agents.”

Seckinger-Lee Co., 32 F. Supp. 2d at 1354 (citing St. Farm Fire & Cas. Co. v.

Fordham, 250 S.E.2d 843, 845 (Ga. Ct. App. 1978)); Willis v. Allstate Ins. Co., 740

S.E.2d 413, 417 (Ga. Ct. App. 2013).

Ascent alleges that “Defendants had a duty to disclose to Plaintiff the facts set

forth above,” but does not identify the basis for that duty. See Doc. 17 at 21. The

bare allegation of a duty to disclose is implausible without any showing of a

confidential relationship or particular circumstances. See Ga. Code Ann. § 23-2-53.

An insurer and insured do not share a confidential relationship. See Seckinger-Lee

Co., 32 F. Supp. 2d at 1354. Ascent argues that particular circumstances exist

because an LMIC employee made certain representations that the defendants never

intended to fulfill. Doc. 38 at 18. However, reliance on representations made by an

insurer’s employee does not satisfy the particular-circumstances test under Georgia

law. See id. at 1355. Ascent has not identified any other basis for particular

circumstances in the amended complaint, and therefore has not plausibly alleged

facts supporting a duty to disclose. The defendants’ motions to dismiss Count V are

due to be granted.

IV. CONCLUSION

For these reasons, it is ORDERED as follows:

(1) The defendants’ Motions to Dismiss (Docs. 26 & 27) are GRANTED

in part and DENIED in part. All of the plaintiff’s claims against LMIC are

DISMISSED with prejudice, except for the claim that LMIC fraudulently

misrepresented that it would promptly pay claims under the policy. The plaintiff’s

claims against Wausau for Fraudulent Misrepresentation (Count IV) and Fraudulent

Suppression (Count V) are DISMISSED with prejudice, except for the claim that

Wausau fraudulently misrepresented that it would promptly pay claims under the

policy.

(2) _LMIC shall serve any outstanding discovery responses on counsel for

Ascent on or before February 16, 2021.

DONE and ORDERED on January 26, 2021.

GRAY 2

UNITED STATES MAGISTRATE JUDGE

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