Fraud Claims Against Insurance Companies

Fort Worth insurance lawyers need to have an understanding of the requirements for suing an insurance company for fraud. A 2015, United States District Court, Austin Division, case is a good place to start for grasping the requirements. The case is styled, Bige, Inc. v. Penn-America Insurance Company; Specialty Insurance Managers, Inc; Eric Kehs.
Bige alleges Penn-America sold them a Policy, representing it included wind and hailstorm coverage for damage to the Property. Bige further alleges the Property sustained damage from a storm. Bige submitted a claim to Penn-America for the damage.
Bige states Penn-America hired or assigned Kehs to adjust the claim, but Kehs failed to fully investigate the claim. Bige alleges, although Penn-America and Kehs acknowledged damage to the Property, Kehs conducted a substandard and improper inspection of the Property, which yielded a grossly inaccurate and unrealistic assessment of the cause, extent and dollar amount of the damage to the Property. Specifically, Kehs determined the amount of damage was less than Bige’s deductible under the Policy. Bige further alleges, upon receipt of the inspection reports, Penn-America failed to review the assessment thoroughly, resulting in a failure to provide coverage due under the Policy. Bige further alleges, following receipt of Bige’s demand letter, Penn-America and Kehs refused to conduct further investigation that was not “outcome-oriented.”
Among the allegations asserted by Bige, the ones discussed here are the allegations for common law fraud and conspiracy to commit fraud.
The defendants contend Bige’s fraud related claims should be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. This essentially says the pleading requirements for these allegations were not properly met.
Penn-America moves to dismiss certain of Bige’s claims for failing to comply with the requirements of Rule 9(b). Specifically, Penn-America contends Plaintiff’s claims for fraud, conspiracy to commit fraud, and for violations of the Texas Insurance Code and DTPA based on misrepresentations allegedly made to Plaintiff, all fail to allege with sufficient specificity the “who, what, when, where, and how” of the alleged representations.
In its response, Bige did not contest dismissal of its fraud claim, admitting the allegations supporting that claim fall short of Rule 9(b). Penn-America’s motion to dismiss was thus properly granted as to that claim.
Bige also concedes the reference to fraud in asserting the claim for conspiracy to commit fraud is improper as the actions alleged in that portion of the complaint do not rise to the level of fraud. Bige suggests the claim should be reformed by removing the word “fraud.” As Penn- America points out, the effect of the deletion is somewhat unclear, but appears to leave Bige’s claim as asserting a conspiracy based on the misrepresentations which are actionable under the Texas Insurance Code and DTPA.
Bige objects to dismissal of any claims under the Texas Insurance Code or DTPA, and thus presumably the reformed conspiracy claim. Bige argues those claims are not subject to the strictures of Rule 9(b) as they are not fraud-based claims. Texas district courts, however, consistently apply Rule 9(b)’s requirements to claims under the Texas Insurance Code and DTPA.
Bige also maintains its claims under the Texas Insurance Code and DTPA adequately meet the standard of Rule 9(b). Bige cites the Fifth Circuit’s pronouncement that “‘Rule 9(b)’s ultimate meaning is context-specific,” and thus that, “depending on the claim, a plaintiff may sufficiently ‘state with particularity the circumstances constituting fraud or mistake’ without including all the details of any single court-articulated standard–it depends on the elements of the claim at hand.” Bige contends its allegations that Penn-America “misrepresented the cause of, scope of, and cost to repair the damages to their Property,” and that it did so “with the intent the Plaintiff act in accordance with the misrepresentations in the grossly deficient damage and costs of repair estimate prepared by Kehs” are sufficient to meet the applicable burden.
Penn-America, however, correctly points out the allegations cited by Bige do little more than assert wrongdoing by Penn-America and Kehs in broad and vague terms. Lacking are specific facts concerning statements made by, or on behalf of Penn-America, and how those statements amounted to misrepresentations. Nor has Bige pointed to any allegation explaining how Bige was injured as a result of the representations.
Bige further suggests there is no necessity for it to identify the “who” and “when” because the misrepresentation came from Penn-America itself, and Penn-America can readily ascertain that information from its own files. Bige maintains the Fifth Circuit has recognized Rule 9(b)’s requirements may be “to some extent relaxed” when “the facts relating to the alleged fraud are peculiarly within the perpetrator’s knowledge.” The Fifth Circuit has rejected the application of a relaxed standard when the plaintiff had failed to establish the facts were “peculiarly within” the defendant’s knowledge. Similarly, while Penn-America may indeed have relevant records in its files, Bile has provided no explanation for why that information is also not within its own knowledge. The Court thus found Bile’s claims of fraud and conspiracy, as well as under the Texas Insurance Code and the DTPA did not meet the pleading requirements of Rule 9(b).