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Schmid v. Safeco Insurance Co. of Illinois

United States District Court, D. Nevada

July 11, 2019

STEPHEN C. SCHMID, Plaintiff,
v.
SAFECO INSURANCE COMPANY OF ILLINOIS, et al., Defendants.

          ORDER

          KENT J. DAWSON, UNITED STATES DISTRICT JUDGE

         Presently before the Court for consideration is Defendants Safeco Insurance Company of Illinois' and Safeco Insurance Company of America's Joint Motion to Dismiss (#5). Plaintiff Stephen Schmid filed a response in opposition (#7) to which both Safeco entities replied (#8).

         I. Background

         Schmid purchased an insurance policy, identified as policy no. A3118256, from Safeco of Illinois on March 19, 2016. Compl. 2, ECF 1-1. About two months later on May 17, 2016, Schmid suffered injuries from an automobile accident caused by an allegedly underinsured person. Id. On December 6, 2017, Schmid notified Safeco of Illinois of the inadequate insurance coverage and submitted a claim against his own policy under his uninsured or underinsured motorist benefits. Id. The complaint does not allege denial of the claim; however, it does allege that Safeco has failed to make a payment. Id. at 2. Having received no payments from Safeco, Schmid filed suit in the Clark County District Court, Nevada on September 17, 2018. Id. at 1. Safeco timely removed to this Court and now moves to dismiss. Notice of Removal 1, ECF 1; Mot. to Dismiss 1, ECF 5.

         II. Legal Standard

         A court may dismiss a plaintiff's complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A properly pled complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). 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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Factual allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. Thus, “[to] survive a motion to dismiss, a complaint must contain sufficient factual matter to ‘state a claim for relief that is plausible on its face.'” Iqbal, 556 U.S. at 678.

         In Iqbal, the Supreme Court clarified the two-step approach district courts are to apply when considering motions to dismiss. First, a district court must accept as true all well-pled factual allegations in the complaint; however, legal conclusions or mere recitals of the elements of a cause of action, supported only by conclusory statements, are not entitled to the assumption of truth. Id. at 678. Second, a district court must consider whether the factual allegations in the complaint allege a plausible claim for relief. Id. at 679. A claim is facially plausible when the plaintiff's complaint alleges facts that allow the court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Id. at 678.

         Further, where the complaint does not permit the court to infer more than the mere possibility of misconduct, the complaint has “alleged-but it has not show[n]-that the pleader is entitled to relief.” Id. at 679 (internal quotation marks omitted). Thus, when the claims in a complaint have not crossed the line from conceivable to plausible, the complaint must be dismissed. Twombly, 550 U.S. at 570. Moreover, “[a]ll allegations of material fact in the complaint are taken as true and construed in the light most favorable to the non-moving party.” In re StacElecs. Sec. Litig., 89 F.3d 1399, 1403 (9th Cir. 1996).

         III. Analysis

         Schmid brings four causes of action against the Safeco entities: 1) breach of contract; 2) breach of fiduciary duty; 3) breach of duty of good faith and fair dealing (“bad faith”); and 4) declaratory relief. Defendants move to dismiss each claim against Safeco of America because it is not a party to the contract between Schmid and Safeco of Illinois. The parties have agreed to dismiss Schmid's fiduciary duty claim, and the Court does so. Finally, Safeco of Illinois did not challenge the breach of contract claim in the motion to dismiss, therefore the Court will not discuss it at this time.

         A. Safeco of America

         Both Safeco entities argue that Safeco of America should be dismissed from the case because it is not a party to the insurance policy. A certified copy of the policy is attached to the motion to dismiss as an exhibit. Mot. to Dismiss, Ex. 1, ECF No. 5. The policy indicates that the contract is between Safeco of Illinois and Schmid. Safeco of America is correct that it is not a party to the contract. In fact, Safeco of America does not appear in the policy whatsoever. However, before the Court will consider the policy as extrinsic evidence, it must determine if it should convert the motion to dismiss into a motion for summary judgment.

         Generally, the court will not consider evidence outside of the complaint in a motion to dismiss, but there are exceptions to that rule. Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018). Relevant here is the doctrine of incorporation-by-reference, which allows the court to “[treat] certain documents as though they are part of the complaint itself.” Id. at 1002. This is appropriately applied to cases where the document referenced by the complaint “forms the basis of the complaint.” Id. (quoting U.S. v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003)). The purpose of this doctrine is to “[prevent] plaintiffs from selecting only portions of documents that support their claims, while omitting portions of those very documents that weaken-or doom-their claims.” Id.

         Courts should exercise caution when incorporating outside documents, however, because the “overuse and improper application” of this doctrine “can lead to … harmful results.” Khoja, 899 F.3d at 998, 1003 (the content of incorporated documents may be assumed to be true for the purposes of a 12(b)(6) motion, and, appropriately, ought to be “approached with caution”). As a result, the court should refrain from incorporating documents by reference in circumstances ...


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