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Carlyle v. Travelers Home and Marine Insurance Co.

United States District Court, D. Maryland, Northern Division

June 5, 2014



WILLIAM D. QUARLES, Jr., District Judge.

Carvet Carlyle sued The Travelers Home and Marine Insurance Company ("Travelers") for breach of contract in the Circuit Court for Baltimore City. ECF No. 2. Travelers removed to this Court. ECF No. 1. Pending are Carlyle's motion for leave to file an amended complaint, ECF No. 30, and Travelers's motions to dismiss and to file a surreply, ECF Nos. 22, 33. No hearing is necessary. Local Rule 105.6 (D. Md. 2011). For the following reasons, the motion to dismiss will be denied as moot, and the remaining motions will be granted.

I. Background[1]

Since August 11, 1999, Carlyle[2] has owned a home at 4124 Marx Avenue in Baltimore, Maryland (the "Baltimore home"). ECF No. 30-2 ¶ 4. Beginning in 2005, Carlyle "had a tenant living at" the Baltimore home who paid her rent. Id. ¶ 7. On September 25, 2009, Carlyle purchased a homeowner's insurance policy from Travelers for the period of September 25, 2009 through September 25, 2011 (the "Policy"). Id. ¶ 5. Carlyle paid all the premiums due under the Policy. Id. ¶ 6.

In February 2010, Baltimore "experienced a massive, and largely unprecedented, winter snowstorm that deposited between 2 and 3 feet of snow." Id. ¶ 8. During and after the storm, the Baltimore home sustained damage to the "roof, siding, water pipes, ceilings, walls, floors, fixtures, and personal items" because of the "extreme weather conditions." Id. ¶¶ 9-10. During the same month, someone also broke into the Baltimore home, stole Carlyle's personal property, and caused more damage to the home. Id. ¶ 11.

On March 1, 2010, Carlyle reported the property damage and theft to Travelers. Id. ¶ 13. Travelers assigned three claim numbers to Carlyle's report - one to the damaged water pipes; one to the damaged roof and siding; and one to the burglary. Id. ¶¶ 14-16. Each claim had a deductible of $1, 000. See id. ¶¶ 36, 42. Because the snowstorm damage claims "arose out of the same occurrence" - and should have been considered one claim - Travelers improperly obtained two deductibles from Carlyle for snowstorm-related loss. See id. ¶ 36.

Travelers inspected the Baltimore home and initially concluded that the pipe leaks were unrelated to the snowstorm. Id. ¶ 17. However, Travelers later issued to Carlyle a payment of $2, 365.89[3] for replacing the pipes; an amount far less than Carlyle's multiple third-party estimates of the actual cost of replacing the pipes. Id. ¶¶ 18-20. "Travelers knew or should have known that no contractor would undertake the repairs for the estimated cost of repair." Id. ¶ 21.

Because Travelers and Carlyle continued to dispute whether other water damage caused by the damaged pipes resulted from the snowstorm, Carlyle "was forced to obtain an independent plumber." Id. ¶¶ 22-23. The plumber concluded that water damage to the basement and other parts of the Baltimore home was attributable to the snowstorm. Id. ¶ 23. This new information prompted Travelers to re-inspect the home. Id. ¶ 24. Although Travelers then recognized that the additional water damage was caused by the snowstorm, it did not increase its payment to Carlyle. Id. ¶¶ 24-25. Instead, Travelers assigned its Special Investigations Unit ("SIU") to extensively investigate Carlyle's "personal affairs to determine whether any exclusion under the terms of the Policy might apply." Id. ¶ 25. The SIU investigation requested "extensive and unreasonable amounts of documentation" from Carlyle, including, inter alia, her income tax returns, proof of her income, and disclosure of her bank accounts and creditors. Id. ¶ 51. During the investigation, Travelers also made "offensive and unsubstantiated... accusations" about Carlyle, including that she "neglected her property and allowed squatters to reside in her home." Id. ¶ 52.

As a result of the delayed repairs to the water damage caused by Travelers's "continued reluctance to provide adequate compensation, " mold developed in the Baltimore home. Id. ¶ 32. Although Carlyle reported the "resultant mold growth" - which was covered by the Policy - to Travelers, it did not increase payment to Carlyle and instead assigned the SIU to determine if an exclusion applied. Id. ¶¶ 33-35. Since March 2010, because of the mold growth, the Baltimore home has been unhabitable, forcing Carlyle to lose rental income from her tenant and to move elsewhere and pay monthly rent. See id. ¶¶ 58-59.

Travelers also issued a payment to Carlyle of $3, 122.02[4] for the damage to the siding and roof. Id. ¶ 26. Carlyle contested Travelers's valuation of the damage, and Travelers issued an additional payment of $1, 107.74. Id. ¶ 27. Even including this second payment, Travelers's repair estimate was far less than Carlyle's multiple third-party estimates of the cost of repairing the damage to the home. See id. ¶¶ 28-29. "Travelers knew or should have known" that Carlyle would not be able to obtain the needed repairs for Travelers's estimated cost of repair. Id. ¶ 30.

On March 5, 2010, Carlyle filed a police report about the stolen property. Id. ¶ 39. Although Carlyle provided Travelers "numerous photos, lists and receipts to substantiate the loss, " Travelers claimed that she had not sufficiently documented her loss. See id. ¶¶ 40-41. Travelers eventually issued Carlyle a payment of $2, 236.67 for the missing items and $1, 397.20[5] for damage caused by the break-in. Id. ¶ 42. These payments again were far less than the amount of actual damage and loss, and Carlyle was unable to find a contractor willing to fix the property damage for Travelers's estimated cost of repair. See id. ¶¶ 43-45. Travelers knew or should have known that these payments were insufficient. Id. ¶¶ 46-47.

On May 21, 2012, Travelers issued a final determination letter for Carlyle's snowstorm-related damage claims, which "refused to indemnify [Carlyle] to the full extent of her damages." Id. ¶ 54. On November 14, 2012, Carlyle submitted a complaint to the Maryland Insurance Administration ("MIA"), asserting that Travelers had improperly denied coverage.[6] ECF No. 33-2 at 1. On December 4, 2012, Travelers issued a second final determination letter, which "denied full coverage for the February burglary." ECF No. 30-2 ¶ 55.

On February 5, 2013, Carlyle, pro se, sued Travelers and others[7] in the Circuit Court for Baltimore City. ECF No. 2. On April 26, 2013, in response to Travelers's motion for a more definite statement, Carlyle filed an amended complaint. ECF Nos. 6, 7. On August 7, 2013, the MIA issued a final determination letter concluding that "Travelers has not violated Maryland insurance law in its handling of [Carlyle's] claims." ECF No. 33-2 at 1.

On September 19, 2013, Carlyle - through counsel - filed a second amended complaint alleging breach of contract (Count One) and torts arising from breach of contract (Count Two).[8] ECF No. 18. On October 8, 2013, Travelers removed to this Court on the basis of diversity jurisdiction[9] and answered the complaint. ECF Nos. 1, 21.

On November 13, 2013, Carlyle moved for leave to file a third amended complaint. ECF No. 30. The proposed amended complaint deletes Count Two and supplements Count One with a claim for attorneys' fees for Travelers's alleged failure to act in good faith in denying insurance coverage under Md. Code Ann., Cts. & Jud. Proc. § 3-1701(e)(2) (West 2007). See ECF No. 30-2 at 9-13. On November 18, 2013, Travelers opposed the motion. ECF No. 31. On December 3, 2013, Carlyle replied. ECF No. 32. On December 11, 2013, Travelers moved unopposed for leave to file a surreply. ECF No. 33.

II. Analysis

A. Surreply

Unless otherwise ordered by the Court, a party may not file a surreply. Local Rule 105.2(a) (D. Md. 2011). "Surreplies may be permitted when the moving party would be unable to contest matters presented to the court for the first time in the opposing party's reply." Khoury, 268 F.Supp.2d at 605. Because Travelers's proposed surreply is responsive to an argument that Carlyle raised for the first time in her reply, the Court will grant the motion. See id.; ECF Nos. 32, 33-1.

B. Motion for Leave to Amend

A party may amend a pleading more than 21 days[10] after a responsive pleading has been served only with the opposing party's consent or leave of court. Fed.R.Civ.P. 15(a).[11] Federal Rule of Civil Procedure 15(a)(2) instructs that leave to amend should be freely given when justice requires. Leave should be denied only when amendment would unduly prejudice the opposing party, amount to futility, or reward the movant's bad faith.[12] Steinburg v. Chesterfield Cnty. Planning Comm'n, 527 F.3d 377, 390 (4th Cir. 2008); Equal Rights Ctr. v. Niles Bolton Associates, 602 F.3d 597, 603 (4th Cir. 2010).

Travelers argues that Carlyle's proposed amendment is futile, because she has failed to exhaust her attorneys' fees claim by first filing it with the MIA. ECF No. 31. Carlyle contends that the amendment is not futile, because she submitted her claim to the MIA and received a final determination. ECF No. 32 at 4. An amendment is futile if it would fail to withstand a motion to dismiss. See Perkins v. United States, 55 F.3d 910, 917 (4th Cir. 1995).

A motion to dismiss for failure to exhaust administrative remedies challenges the Court's subject matter jurisdiction. See Clarke v. DynCorp Int'l LLC, 962 F.Supp.2d 781, 786 (D. Md. 2013). Under Federal Rules of Civil Procedure 12(b)(1) and 12(h), the Court must dismiss an action if it discovers it lacks subject matter jurisdiction. The plaintiff has the burden of proving the Court has jurisdiction, and the Court must make all reasonable inferences in the plaintiff's favor. Khoury, 268 F.Supp.2d at 606. The Court may examine evidence "beyond the pleadings" to decide whether it has subject matter jurisdiction, without converting the proceeding to one for summary judgment, but it must presume that the factual allegations in the complaint are true. See id.; Evans v. B.F. Perkins Co., a Div. of Standex Int'l Corp., 166 F.3d 642, 647 (4th Cir. 1999).

Section 3-1701 authorizes recovery from insurers of, inter alia, actual damages and "[e]xpenses and litigation costs... including reasonable attorney's fees" if an insured prevails on a claim of improper denial of coverage, and the "insurer failed to act in good faith" in declining payment. See § 3-1701(a)(4), (e); Thompson v. State Farm Mut. Auto. Ins. Co., 196 Md.App. 235, 238, 9 A.3d 112, 114 (2010). To bring an action under this statute, the insured must comply with the exhaustion provisions of Md. Code Ann., Ins. § 27-1001 (West 2007).[13] Section 27-1001(d)(1) states that a "complaint stating a cause of action under § 3-1701 of the Courts Article shall first be filed with the MIA." The complaint must "specify the applicable insurance coverage[, ] the amount of the claim under the applicable coverage[, ] the amount of actual damages, and the claim[ed] expenses and litigation costs." § 27-1001(d)(2).

To demonstrate that she has exhausted her claims before the MIA, Carlyle has attached to her reply the first page of the MIA's final determination letter denying her claims against Travelers, which was issued before she sought leave to amend. See ECF No. 32 at 1. Travelers has attached to its surreply the full 10-page letter.[14] ECF No. 33-2. Travelers contends that the letter "constitutes the MIA's decision regarding its review of Travelers' claims handling practices under § 27-303 of the Insurance [Article] not § 27-1001." ECF No. 33-1 at 2. Accordingly, Travelers argues that Carlyle did not exhaust her claim, because she did not file a "complaint alleging failure to act in good faith" under § 27-1001. See ECF No. 33-1 at 2.

Travelers's contention lacks merit.[15] After reviewing the relevant Policy provisions and the background of the case in great detail, the letter states that the MIA "focused its review" on § 4-113[16] ("denials, refusals to renew, suspensions, and revocations") and § 27-303[17] ("unfair claim settlement practices") of the Maryland Insurance Article. ECF No. 33-2 at 9. Although the letter only specifically cites sub-sections (1), (2), and (6) of § 27-303 - which do not discuss the good faith requirement - the letter expressly states that "Travelers' actions have not been shown to be arbitrary and capricious, to be lacking in good faith or to otherwise be in violation of the Insurance Article." Id. (emphasis added). Further, sub-section nine of § 27-303 defines an "unfair claim settlement practice" as a "fail[ure] to act in good faith, as defined under § 27-1001 of this title, in settling a first-party claim under a policy of property and casualty insurance."[18] § 27-303(9). Accordingly, the MIA expressly considered whether Travelers acted in good faith - as defined in § 27-1001 - in denying Carlyle's claim. Because Carlyle has exhausted her claim that Travelers failed to act in good faith - and Travelers has not argued any other basis for the amendment's futility - Carlyle's motion for leave to amend will be granted.

III. Conclusion

For the reasons stated above, Carlyle's motion for leave to amend and Travelers's motion to file a surreply will be granted, and Travelers's motion to dismiss will be denied as moot.

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