There’s a new case out from Division Two, Cullen v. Koty-Leavitt Insurance, which deals with the reasonable expectations doctrine in the UIM setting. The case is not particularly fascinating from a substantive perspective, but it raises questions about potential legal malpractice exposure.
In sum, Cullen filed a UIM claim based upon the fact that his family was given the right to privately use a business vehicle. The vehicle was owned by the business, Sierrita Mining and Ranch Company, and had UIM coverage with Auto Owners. The named insured was the business, and there were no additional insureds.
Cullen was injured while riding in another vehicle and filed a UIM claim with Auto Owners. The insurer denied his UIM claim, he then filed suit and the trial court dismissed the action.
First, the Court of Appeals expressly adopted the Supreme Court’s holding in Bell Atlantic Corp. v. Twombly, the case that overruled the familiar Conley v. Gibson standard for dismissal.
This is a significant move and one wonders how the Arizona Court of Appeals, which is bound to follow the Arizona Supreme Court on such matters, saw fit to disregard the Arizona Supreme Court and unilaterally adopt the United States Supreme Court’s Twombly holding. In any event, doubt no further, the “notice pleading” landscape has changed in Arizona as follows:
“While a complaint attacked by a Rule 12(b)(6) . . . motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Instead, the complaint’s “[f]actual allegations must be enough to raise a right to relief above the speculative level.”
The Court stated “when a complaint fails to recite at least the basic facts supporting a claim for relief, we cannot see how a defendant would have fair notice of the nature and basis of the claim.” The Court then, turning its attention back to Cullen’s case, stated it was limiting its review to the facts alleged in the complaint and the terms of the insurance contract.
Second, the Court went on to state that “[i]t is clear that the UIM provision of the policy Auto Owners issued to Sierrita does not provide Cullen with UIM coverage.” This is pretty straight-forward since the only named insured was the business and Cullen was not injured while in the insured vehicle.
Third, the Court addressed the reasonable expectations argument. The Court explained that “[t]he [reasonable expectations] doctrine necessarily applies to the reasonable expectations of the contracting parties, not to the reasonable expectations of a hopeful insured, such as Cullen, who is a stranger to the insurance contract.” The Court concluded that “the reasonable expectations doctrine d[oes] not apply to an injured party who ‘had nothing to do with the purchase of the policy in question [and] never had an insurable interest or expectancy under the policy.'”
Then the Court gets cheeky. The Court stated that, despite Cullen’s status as a “stranger” to the insurance contract, “Cullen’s complaint is sufficient if the facts he alleged permit the inference Sierrita had a reasonable expectation Cullen would have portable UIM coverage under the policy it purchased from Auto Owners.”
Ho-hum, what could they be thinking? How about this: “In his briefs to this court, Cullen describes several factual scenarios that arguably could prove one of the above situations applies to his claim. His complaint, however, contains none of them. Although Cullen’s complaint conclusorily asserts he had a reasonable expectation of coverage, as we have explained, his expectations are not relevant here.” So, the Court affirmed the trial court and denied the insurers’ request for attorneys’ fees.
Message: if you want to avoid being sued, forget notice pleading, you better allege facts, facts, facts to support your legal claims.