In Negron v. USAA Casualty Insurance Company, No. 3:13-01020, 2014 WL 4411676 (M.D. Tenn. Sept. 8, 2014), the US District Court for the Middle District of Tennessee recently granted an insurer’s motion to dismiss a bad faith claim brought under Tennessee law, holding that the policyholders’ claim did not meet the pleading requirements set forth by the US Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atlantic Corp. v. Twombley, 550 U.S. 544 (2007).

The homeowners policy at issue insured against a number of risks, including sinkholes.  The policyholders provided notice of loss after their home was damaged by an apparent sinkhole activity.  A professional engineer hired by the insurer confirmed that the home had been damaged, but concluded that the damage was caused by excluded perils, not by sinkhole activity.  After the insurer denied their claim, the policyholders filed suit alleging breach of contract and bad faith. 

The court began by noting that a plaintiff’s obligation to provide the “grounds” for his “entitle[ment] to relief” requires more than just a “label and conclusions,” and that “a formulaic recitation of the elements of a cause of action will not do.”  Id. at *2 (citing Twombly, 550 U.S. at 555).  The court also explained that the federal pleading standard requires more than “unadorned, the-defendant-unlawfully-harmed-me accusation[s].”  Id. at *3 (citing Iqbal, 556 U.S. at 678).  The court then determined that the policyholders’ bad faith allegations did not meet these requirements.   The court explained that the policyholders’ allegations that the insurer failed to exercise requisite care, failed to investigate, and ignored requests to pay were “at best conclusory,” and were “little more ‘than a formulaic recitation of the elements’ of a bad faith claim.”  Id.  The court also observed that the policyholders’ allegation that the insurer had exhibited a pattern and history of bad faith was conclusory and bereft of any supporting facts.  Finally, the court noted that the one factual allegation that actually touched upon bad faith did not make the claim plausible because the policyholders admitted in their complaint that the insurer actually undertook an investigation.   Id.  Despite the clear pleading deficiencies, however, the court granted the policyholders’ request for leave to amend their complaint.

Negron is an important decision in that it refuses to allow a policyholder to mechanically plead bad faith elements in a federal complaint.  Rather, policyholders must include sufficient factual allegations to demonstrate the plausible existence of bad faith.