Twombly and the Possible Impact on Coverage Cases
The US Supreme Court recently set forth a heightened standard to apply to Fed. R. Civ. P. 12 motions to dismiss in its decision in Bell Atlantic Corp. v. Twombly in which a class action was dismissed for failure of the class to demonstrate that it could “plausibly” win at trial. In Twombly, the Court stated that to survive such a motion, the claim must include "enough facts to state a claim to relief that is plausible on its face." The Court explained that the factual "allegations must be enough to raise a right to relief above the speculative level." The Court noted that it was not imposing a "probability requirement at the pleading stage," and a well-pleaded complaint could proceed even if it was apparent that actual proof of the facts alleged was improbable and recovery was unlikely. The Court further explained that the complaint merely needed to contain enough factual matter to "raise a reasonable expectation that discovery will reveal evidence of" the claim or element. This ruling essentially departed from the established standard set forth in Conley v. Gibson, 355 U.S. 41 (1957) where the Court stated that lawsuits should not be dismissed at such an early stage unless it appeared that the party could prove “no set of facts” at trial that could support its claim. Court watchers have indicated that this ruling will substantially impact the ability of plaintiffs to withstand attacks on complaints where the intent of a defendant is a necessary predicate to obtaining relief. It is unknown how the 26 states that have patterned their dismissal standards on the Conley “no set of facts” language will apply the ruling in cases involving only the interpretation of state law.
So far, only one decision has been released applying the Twombly standard in an insurance coverage case. In State Auto Prop. & Cas. Ins. Co. v. Loehr, No. 4:06CV01427 FRB, 2007 U.S. Dist. LEXIS 69449 (E.D. Mo. Sept. 19, 2007), the Eastern District of Missouri found that a plaintiff insured met the “plausible” standard under Twombly as his complaint adequately alleged that State Auto's refusal to pay benefits was vexatious and without reasonable cause or excuse and cited the appropriate Missouri statute providing for vexatious refusal for payment of claims. According to the opinion, it did not appear that any separate specific facts related to the basis for the “vexatious” allegation was plead other than an allegation regarding the nonpayment of policy proceeds. However, the court found that the insured sufficiently met the Twombly standard as the general facts alleged concerning nonpayment of policy proceeds demonstrated "a reasonable expectation that discovery will reveal evidence of defendant's claim for vexatious refusal to pay.”
