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Rood v. Liberty Insurance Underwriters, Inc.

United States District Court, D. Nevada

July 6, 2017

Martin S. Rood, Plaintiff
v.
Liberty Insurance Underwriters, Inc., et al., Defendant

          ORDER GRANTING DEFENDANT'S MOTION TO DISMISS [ECF No. 8]

          Jennifer A. Dorsey United States District Judge

         Plaintiff Martin Rood invested nearly a million dollars into a real estate development. The development eventually failed, and Rood discovered that the appraisal he relied on when deciding to invest had been exaggerated. So he sued the appraisers and received a judgment against them. One of those appraisers was insured by defendant Liberty Insurance Underwriters, Inc. (“Liberty”). But Liberty refused to pay the judgment against the appraiser because it believed that two exclusions in its policy barred coverage. Rood received an assignment of the appraiser's rights against Liberty and now stands in the appraiser's shoes to sue Liberty for breach of contract, bad faith, and unfair claims practices.

         Liberty moves to dismiss all of Rood's claims. It contends that its policy exclusions bar coverage as a matter of law, that Rood's bad faith claims are untimely, and that he has not alleged a plausible unfair-practices claim. Liberty has not yet established that its policy exclusions apply, so I do not dismiss Rood's breach of contract claim. But I dismiss his other two claims. Rood waited too long to bring his tort claim for bad faith. And he did not even oppose Liberty's arguments related to the unfair-practices claim. I thus grant in part and deny in part Liberty's motion to dismiss.

         Background

         In 2006, Hallock Ryno, Inc. loaned money to Cielo Vista, LLC, so that Cielo Vista could create a new housing development on a large tract of land that it owned.[1] Hallock then solicited investors to purchase an interest in the loan.

         Hallock sent potential investors, including Rood, an offering circular with the investment terms and an appraisal of the property. The appraisal valued the property at well over $5 million.[2]Rood relied on this appraisal to invest almost $1 million for a 50% interest in Hallock's loan.[3] Other appraisals valued this property at less than $3 million, but Rood was never given that information.[4]

         When the housing development flopped, Rood sued Hallock and the appraisers.[5] One of the appraisers, Jack Gillespie, had a professional liability insurance policy with Liberty.[6] Gillespie asked Liberty to defend him, but it refused, citing two policy exclusions that it believed barred coverage.[7]Rood eventually succeeded in that case, receiving a judgment against Gillespie for $647, 000.[8]Gillespie then assigned Rood all of his claims against Liberty.[9]

         Discussion

         A. Motion-to-dismiss standards

         A properly pleaded complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.”[10] While Rule 8 does not require detailed factual allegations, it demands more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of action.”[11] “Factual allegations must be enough to rise above the speculative level.”[12] To survive a motion to dismiss, a complaint must “contain [] enough facts to state a claim to relief that is plausible on its face.”[13]

         Liberty relies on several documents outside of the complaint in moving to dismiss. Generally I may consider only allegations in the complaint at the dismissal stage.[14] But I may also consider documents that the complaint incorporates by reference if the plaintiff “refers extensively to the document or the document forms the basis of the plaintiff's claim.”[15] Merely mentioning a document in the complaint is not enough.[16]

         B. Rood plausibly alleges his breach of contract claim.

         Liberty offers only one argument against Rood's breach of contract claim: coverage was excluded under provisions in Liberty's policy. Interpreting contract terms is generally a job for the court.[17] But when an interpretation turns on underlying factual disputes, those fact questions may be submitted to a jury.[18] “If a provision in an insurance contract is unambiguous, a court will interpret and enforce it according to the plain and ordinary meaning of its terms.”[19] But where a term is ambiguous, it is generally construed in favor of the insured and against the insurer.[20] “[W]hether an insurance policy [term] is ambiguous turns on whether it creates reasonable expectations of coverage as drafted.”[21] Liberty relies on two exclusions: Exclusion L and Exclusion N.

         1. Exclusion L

         The first exclusion that Liberty relies on is Exclusion L of the policy, which excludes coverage for an appraisal done for a “real estate syndicate, real estate investment trust or limited partnership which utilizes the Insured's Appraisal or report . . . to solicit investors.”[22] In other words, Liberty's policy doesn't cover an appraisal done for certain real estate companies if those companies use the appraisal to solicit investors.

         Liberty contends that the allegations in the complaint and the documents the complaint refers to make clear that the appraisal was done for a “real estate trust” to “solicit investors” in the development, so the exclusion is met. Although it is true that the complaint suggests that the appraisal was used to solicit investors, there are no allegations from which I can determine that Hallock, the company using the appraisal, was a “real estate syndicate, real estate investment trust, or limited partnership.” Liberty argues that Hallock is a real estate trust, but points to no allegations in the complaint or the documents it incorporates to establish that this is so.

         The only information I have about Hallock is that it loaned money to a third party. Does loaning money to a third party make Hallock a “real estate investment trust” merely because the recipient of the loan plans to build a residential development?[23] Liberty offers no authority suggesting this is so.[24] Because I cannot conclude from the factual allegations before me that Exclusion L applies, at this nascent stage, I cannot say that Exclusion L bars coverage here.

         2. Exclusion N

         If Exclusion L does not apply, Liberty contends that Exclusion N bar this claim. Exclusion N excludes coverage for appraisals done on “vacant land” that is slated to be a “multiple unit single family housing development, condominium development, co-operative housing developments or apartment developments consisting of 10 units or more.”[25] Liberty has similar troubles here: it has not established what these terms mean, ...


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