United States District Court, S.D. West Virginia, Huntington Division
THOMAS H. FLUHARTY, Trustee of the Bankruptcy Estates of Dennis Ray Johnson, II No. 316-BK-30227; DJWV2, LLC No. 316-BK- 30062; Southern Marine Services, LLC No. 316-BK-30063; Southern Marine Terminal, LLC No. 317-BK-30064; Redbud Dock, LLC No. 316-BK-30398; Green Coal, LLC No. 316-BK-30399; Appalachian Mining & Reclamation, LLC No. 316-BK-30400 Producer's Land, LLC 316-BK-30401; Producer's Coal, Inc. 316-BK-30402; Joint Venture Development, LLC No. 316-BK-30403, Plaintiffs,
PEOPLES BANK, NA, PEOPLES INSURANCE AGENCY, LLC, and GREAT AMERICAN INSURANCE COMPANY OF NEW YORK. Defendants.
C. CHAMBERS UNITED STATES DISTRICT JUDGE
before the Court, among other motions, is Defendant Peoples
Insurance Agency, LLC's (“Peoples Insurance”)
Motion to Dismiss (ECF No. 23). In that motion, Peoples
Insurance requests that this Court dismiss Count Ten of
Plaintiff's Complaint, titled “Bad Faith Claim
Against Insurers.” Peoples Insurance argues that
Plaintiff's bad faith claim should be dismissed against
it because it is not an insurer, but is instead an insurance
broker. Due to its status as a “middleman between the
insured and the insurer, ” Peoples Insurance claims
that the contractual obligations that would give rise to a
bad faith claim do not exist between it and the group of
entities for which Plaintiff is the trustee (“Coal
Group”). And the relevant statutory obligations do not
apply to an insurance broker in this context. The Court
agrees with Peoples Insurance, and thus, as explained below,
GRANTS Defendant Peoples Insurance's
Motion to Dismiss (ECF No. 23).
case-having been initiated by the filing of a 68-page
complaint, with roughly 50-pages in attachments-has a long
and winding factual narrative. For part of the factual
background of this matter, refer to the Court's
previously filed Order Granting Defendant Burkons's
Motion to Dismiss. Fluharty v. Peoples Bank, NA, No.
3:17-4220 (ECF No. 87), 2018 WL 1954829, at *1-*2 (S.D. W.Va.
Apr. 24, 2018) (Chambers, J.). In this order, the Court will
not traverse the complete factual development that led to the
claims currently before it. However, the Court will simply
provide a summary of the limited scope of facts that are
relevant to Peoples Insurance's Motion to Dismiss.
obtaining financing for the acquisition and operation of
various entities comprising the Coal Group, one of the Coal
Group entities, Southern Marine Terminal, LLC
(“SMT”), obtained insurance on a recently leased
coal-wash facility. Compl, at ¶¶ 33, 34.
SMT had leased the facility, called the Ivel wash plant,
located in Floyd County, Kentucky, from Prater Creek Coal
Corporation (“Prater”). Id.
Johnson, both individually and on behalf of various Coal
Group entities, had obtained the funding for the business
growth from Peoples Bank, NA (“Peoples Bank”).
Although Peoples Bank and Peoples Insurance are separate
business entities, they have, at times, simultaneously shared
at least one common officer. Pl.'s Resp. to People
Insurance's Mot. to Dismiss, ECF No. 33, at 6. Due
to the closeness of those two businesses, SMT obtained
insurance for the Ivel wash plant through Peoples Insurance.
Compl, at ¶ 34. SMT, with Peoples Insurance
serving as the insurance broker, entered in to an insurance
policy with Great American Insurance Company of New York
(“GAI”), another defendant in this case.
August 2014, roughly two years after first leasing the Ivel
wash plant, SMT agreed to purchase it from Prater.
Id. at ¶ 35. In connection with that
seller-financed purchase, SMT “directed Peoples
Insurance to add [Prater] as a loss payee/additional insured
on the property loss coverage.” Id. Soon, the
Ivel wash plant, vital to the operation of the Coal Group,
would experience an unfortunate property loss.
18, 2015, a coal beltline at the Ivel plant broke and fell.
Id. at ¶ 48. With the beltline out, the plant
was largely left inoperable for a period of time.
Id. Allegedly, this disruption not only threatened
the operation of the plant, but also the value of the entire
Coal Group, causing modifications to the plant's
operations and forcing additional expenditures in an effort
to stay afloat. Id.
filed a claim on its insurance policy with GAI for the Ivel
wash plant loss. SMT reported a claim for both the property
loss itself, as well as the business interruption.
Id. ¶ 50. Although SMT attempted to maintain
business operations through the pendency of the claim's
processing, Plaintiff alleges that those efforts were
undermined by the acts and omissions in the treatment,
processing, and payment of its Ivel-related claims.
Id. Ultimately, Plaintiff contends that these acts
and omissions caused Prater to declare SMT in default of its
financing agreement for the Ivel facility.
from those alleged acts and omissions, Plaintiff has asserted
a bad faith claim arising under a Kentucky common law
obligation to act in good faith, the Kentucky Consumer
Protection Act (“KCPA”) (Ky. Rev. Stat. Ann.
§ 367.110 et seq.), and the Kentucky Unfair
Claims Settlement Practices Act (“KUCSPA”) (Ky.
Rev. Stat. Ann. § 304.12-230). Compl., at
¶ 218. Peoples Insurance argues that Plaintiff cannot
properly state a claim against it under either the common law
duty or the duties derived from the statutory provisions. The
Court agrees with Peoples Insurance. After laying out the
standard on consideration of a 12(b)(6) motion to dismiss,
the Court will address Plaintiff's bases for the bad
faith claim. In hashing out its reasoning, the Court will
discuss each of those bases in reverse order.
overcome a motion to dismiss under Federal Rule 12(b)(6), a
complaint must state a plausible claim. Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 546 (2007). This standard
requires a plaintiff to set forth the “grounds”
for an “entitle[ment] to relief” that is more
than mere “labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not
do.” Id. at 555 (internal quotations and
citations omitted). A complaint must contain
“sufficient factual matter, accepted as true, to state
a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(internal quotations and citation omitted). Facial
plausibility exists when a claim contains “factual
content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Id. (citation omitted).
the Court accepts the factual allegations in the complaint as
true. Those allegations, however, “must be enough to
raise a right to relief above the speculative level . . . .
” Twombly, 550 U.S. at 555 (citations
omitted). If the allegations in the complaint, assuming their
truth, do “not raise a claim of entitlement to relief,
this basic deficiency should . . . be exposed at the point of
minimum expenditure of time and money by the parties and the
court.” Id. at 558 (internal quotations and
citations omitted). “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.”
Iqbal, 556 U.S. at 678 (internal quotations and
first the applicability of the KUCSPA to Peoples Insurance,
the Court finds that Peoples Insurance is not subject to
claims under that statute in this case. Although not stated
explicitly, the Kentucky case law strongly militates toward
the inapplicability of the KUCSPA to insurance agents or
parties largely rely upon the same case, Davidson v. Am.
Freightways, Inc., 25 S.W.3d 94 (Ky. 2000), but differ
in their respective readings of the case. Plaintiff contends
the lack of an express prohibition against holding insurance
agent accountable under the KUCSPA in the caselaw, means that
insurance agents or brokers are subject to the KUCSPA's
obligations. Pl.'s Resp. to People Insurance's
Mot. to Dismiss, at 3-4. Thus, Plaintiff argues, he may
bring a claim against Peoples Insurance under the KUSCPA.
Id. Unlike Plaintiff, Peoples Insurance, focuses
upon what the court in Davidson said, instead of
what the court did not say. Mem. in Supp. of Mot. to
Dismiss, ECF No. 24, at 7-8. The court in
Davidson, as pointed out by Peoples Insurances,
provided that the KUCSPA, and bad faith claims generally,
applies “only to those persons or entities (and their
agents) who are ‘engaged . . . in the business of
entering into contracts of insurance.'”
Davidson v. Am. Freightways, Inc., 25 S.W.3d 94, 102
(KY 2000) (quoting KRS 304.1-040). Indeed, “[t]he
gravamen of the [KUCSPA] is that an insurance company is
required to deal in good faith . . . with respect to a claim
which the insurance company is contractually
obligated to pay.” Id. at 100 (emphasis
Court agrees with Peoples Insurance's reading of
Davidson, and believes that the case counsels
against applying the KUCSPA to Peoples Insurance. Limiting
the reach of the KUCPSA, the Supreme Court of Kentucky relied
upon the contractual obligation involved in an insurance
company's relationship to an insured. Id. at
100-02 (generally emphasizing that bad faith claims, and the
KUCSPA, depend upon the contractual obligation). The Kentucky
court reviewed its previous distillations of bad faith claims
under Kentucky law. Condensing both statutory and common law
bad faith claims, the Supreme Court of Kentucky, in a 1993
case called Wittmer v. Jones, had “gathered