Loretta Elliott v. American States Insurance Co. , 883 F.3d 384 ( 2018 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 17-1421
LORETTA T. ELLIOTT,
Plaintiff - Appellant,
v.
AMERICAN STATES INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court for the Middle District of North Carolina, at
Greensboro. N. Carlton Tilley, Jr., Senior District Judge. (1:16-cv-01175-NCT-JEP)
Argued: December 6, 2017 Decided: February 20, 2018
Before MOTZ, AGEE, and FLOYD, Circuit Judges.
Affirmed by published opinion. Judge Floyd wrote the opinion in which Judge Motz and
Judge Agee joined.
ARGUED: James Harold Hughes, HUGHES LAW, PLLC, Durham, North Carolina;
James Bruce Hoof, BRUCE HOOF LAW, Durham, North Carolina, for Appellant.
William Walton Silverman, WALL TEMPLETON & HALDRUP, PA, Raleigh, North
Carolina, for Appellee. ON BRIEF: J. Mark Langdon, Robin A. Seelbach, WALL
TEMPLETON & WALDRUP, PA, Raleigh, North Carolina, for Appellee.
FLOYD, Circuit Judge:
Loretta Elliott filed this claim against her insurance company, American States
Insurance Company (“ASIC”), alleging that its conduct in handling her insurance claim
constitutes an unfair claims settlement practice in violation of N.C. Gen. Stat. § 58-63-
15(11), and, as a matter of law, an unfair and deceptive trade practice in violation of N.C.
Gen. Stat. § 75-1.1. On appeal, Elliott asserts that the district court erroneously denied
her motion to remand based on ASIC’s alleged untimely filing for notice of removal,
arguing that the period for filing commences when a statutory agent is served. She also
asserts that diversity jurisdiction does not exist because the case should be properly
treated as a “direct action” within the meaning of 28 U.S.C. § 1332(c)(1). Last, Elliott
argues that the district court erroneously granted ASIC’s Rule 12(b)(6) motion to dismiss
for failure to state a claim. For the following reasons, we affirm.
I.
On January 16, 2013, Elliott was in an automobile accident with Michael Jones.
Elliott suffered serious, painful, and permanent bodily injuries as a result of the accident.
At the time of the accident, Elliott’s vehicle was insured by ASIC. Her policy included
underinsured motorist (“UIM”) coverage of $100,000, less any amount she recovered
under another policy. 1 Jones had liability coverage up to $30,000 with State Farm
1
North Carolina law defines the term “underinsured highway vehicle” as:
a highway vehicle with respect to the ownership, maintenance, or use of
which, the sum of the limits of liability under all bodily injury liability
2
Insurance Company (“State Farm”). Elliott submitted a settlement demand package to
State Farm, alleging $234,847 in total damages and alleging that Jones’s negligence
caused the accident. State Farm paid her the policy limit of $30,000. Elliott submitted
the same claim to ASIC with a settlement demand to recover the $70,000 limit in UIM
benefits remaining under her policy. ASIC declined to make any offer to settle the claim.
In response, Elliott advised ASIC that she was “compelled to institute litigation to
recover amounts due” under her UIM policy. J.A. 71.
On October 8, 2014, Elliott initiated a lawsuit to recover damages against Jones
(“Elliott v. Jones”) in Superior Court in Durham County, North Carolina, and ASIC
exercised its statutory right as a UIM carrier to defend the Elliott v. Jones lawsuit as an
unnamed party. The lawsuit was referred to arbitration, in accordance with Elliott’s
insurance policy, 2 and an arbitration hearing was held on February 2, 2016. Elliott
alleges that ASIC made “token offers” to settle at some point between the filing of the
lawsuit and the arbitration hearing, and that these offers were “substantially less than the
bonds and insurance policies applicable at the time of the accident is less
than the applicable limits of underinsured motorist coverage for the vehicle
involved in the accident and insured under the owner’s policy.
N.C. Gen. Stat. § 20-279.21(b)(4).
2
Elliott’s policy provides that “the Insured may demand to settle [] disputed issues
by arbitration,” including any disagreement as to “[w]hether the Insured is legally entitled
to recover compensatory damages from the owner or operator of an . . . underinsured
motor vehicle,” or “[a]s to the amount of such compensatory damages[.]” J.A. 62 (Am.
States Policy Pt. C2, “ARBITRATION”, at 12).
3
amount of UIM coverage ultimately recovered . . . .” J.A. 19. Elliott rejected these
offers. On February 9, 2016, an arbitration award was rendered in Elliott’s favor in the
amount of $90,000 plus prejudgment interests and costs. On March 1, 2016, in
accordance with the arbitration award, the Superior Court entered a judgment in Elliott v.
Jones for Elliott in the amount of $68,010.17, after deducting the $30,000 which State
Farm had already paid. ASIC subsequently paid the full amount of this judgment.
Elliott then instituted this action against ASIC in Superior Court in Durham
County, North Carolina, alleging that ASIC’s handling of her UIM claim―specifically,
forcing her to initiate arbitration in order for ASIC to settle the claim―constituted an
unfair claims settlement practice in violation of N.C. Gen. Stat. § 58-63-15(11), and thus,
as a matter of law, an unfair and deceptive trade practice in violation of N.C. Gen. Stat.
§ 75-1.1. She further asserts that she is entitled to recover damages from ASIC for this
violation pursuant to N.C. Gen. Stat. § 75-16. Elliott served the summons and complaint
on the Commissioner of Insurance of North Carolina (the “Commissioner”), ASIC’s
statutorily required agent for service of process; the Commissioner accepted service via
certified mail on August 12, 2016. On August 24, 2016, ASIC received the summons
and complaint from the Commissioner. On September 23, 2016, ASIC removed the
action to the United States District Court for the Middle District of North Carolina on the
basis of diversity jurisdiction. ASIC filed a motion to dismiss pursuant to Federal Rule of
Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted, and
Elliott filed a motion to remand on the basis of both untimely filing for removal and lack
of diversity jurisdiction. The district court subsequently denied Elliott’s motion to
4
remand and granted ASIC’s motion to dismiss. This appeal followed.
On appeal, Elliott raises three distinct arguments. First, she asserts that the district
court erred in denying her motion to remand because she claims that ASIC’s filing for
removal was untimely. At issue is when the filing period commences if the defendant’s
statutory agent for service of process is served instead of the defendant. Second, Elliott
asserts that the district court erred in determining that the parties were diverse and argues
that federal jurisdiction does not exist. Here, she argues that this action by an insured
against her insurance company is a “direct action” within the meaning of 28 U.S.C.
§ 1332(c)(1), and thus that ASIC should be deemed to be a resident of the state in which
she is a resident, which would destroy complete diversity and eliminate the subject matter
jurisdiction of a federal court. Finally, she asserts that the district court erred in granting
ASIC’s motion to dismiss for failure to state a claim upon which relief can be granted.
We reject each of these claims in turn.
II.
We first address Elliott’s assertion that the district court erroneously denied her
motion to remand after incorrectly determining that ASIC timely filed notice of removal.
Elliott argues that ASIC’s period for filing for removal began when she served the
Commissioner because the Commissioner was not simply ASIC’s statutory agent and
that, even if he were, the removal period begins when a statutory agent is served rather
than when the defendant actually receives the complaint. Elliott’s claims have no merit.
We review questions of subject matter jurisdiction de novo, including a district
5
court’s denial of a motion to remand. Mayes v. Rapoport, 198 F.3d 457, 460 (4th Cir.
1999). Doubts about the propriety of removal should be resolved in favor of remanding
the case to state court and in doing so, removal statutes must be strictly construed.
Barbour v. Int’l Union, 640 F.3d 599, 605 (4th Cir. 2011) (en banc).
A.
Before addressing the question of when the period for filing commences when a
statutory agent is served, we must consider whether ASIC’s agent for service of process
was a statutory agent.
A “statutory agent” is “[a]n agent designated by law to receive litigation
documents and other legal notices for a nonresident corporation.” Black’s Law
Dictionary (10th ed. 2014). An “agency by operation of law” is “[a]n agency that arises
under circumstances specified by law without mutual consent between the principal and
the agent having been manifested.” Id. Conversely, a “process agent” or “registered
agent” is defined as “a person authorized to accept service of process on behalf of
another.”
In order to do business in North Carolina, North Carolina law requires that all
foreign or alien insurance companies, including ASIC, file an instrument appointing the
Commissioner of Insurance of North Carolina as the company’s agent for service of
process. N.C. Gen. Stat. § 58-16-5. 3 In complying with this statutory requirement, 4
3
N.C. Gen. Stat. § 58-16-5 provides that “[a] foreign or alien insurance company
may be licensed to do business when it: . . .  (10) Files with the Commissioner [of
Insurance of North Carolina] an instrument appointing the Commissioner as the
6
ASIC’s Board of Directors adopted a resolution nominating the Commissioner as its
agent to accept service of process. 5 Elliott contends that ASIC’s resolution appointing
the Commissioner as its agent for service of process demonstrates that ASIC authorized
the Commissioner in this role such that the Commissioner is a registered agent rather than
a statutory agent. This argument is unavailing, as the statute plainly requires this
appointment. It is also irrelevant that ASIC’s resolution states that it “expressly agree[s]
that any and all lawful processes against it which may be served upon said Insurance
Commissioner, or his successor, shall be deemed valid personal service upon said
company and shall be the same force and validity as if served upon said company,” J.A.
85, because the statute required the same, see N.C. Gen. Stat. § 58-16-5 (“service upon
the Commissioner is sufficient service upon the company”). Thus, the record does not
company’s agent on whom any legal process under G.S. 58-16-30 may be served. This
appointment is irrevocable as long as any liability of the company remains outstanding in
this State. A copy of this instrument, certified by the Commissioner, is sufficient
evidence of this appointment; and service upon the Commissioner is sufficient service
upon the company.”
4
ASIC is a corporation organized under the laws of the State of Indiana with its
principal place of business in Boston, Massachusetts.
5
The appointment provides that “American States Insurance Company . . . does
hereby make, constitute, and appoint the Insurance Commissioner of the State of North
Carolina, or his successor in office, its true and lawful attorney in and for said State of
North Carolina, upon whom all processes of law against said corporation in any action or
legal proceeding may be served . . . and said company does hereby expressly agree that
any and all lawful processes against it which may be served upon said Insurance
Commissioner, or his successor, shall be deemed valid personal service upon said
company and shall be the same force and validity as if served upon said company . . . .”
J.A. 85.
7
indicate that ASIC provided the Commissioner with any agency or authority to act on its
behalf in any way other than what was required under North Carolina law.
Because North Carolina law requires ASIC to appoint and authorize the
Commissioner as its agent for service of process as a condition of writing insurance in the
state, and because this was the only authority ASIC provided the Commissioner, we
conclude that the Commissioner was merely ASIC’s statutory agent for service of
process.
B.
Having concluded that the Commissioner is a statutory agent, we now consider
whether the filing period commences when the statutory agent is served, as Elliott argues,
or when the defendant receives the complaint, as ASIC argues.
The relevant removal statute provides that:
The notice of removal of a civil action or proceeding shall be filed within
30 days after the receipt by the defendant, through service or otherwise, of a
copy of the initial pleading setting forth the claim for relief upon which
such action or proceeding is based, or within 30 days after the service of
summons upon the defendant if such initial pleading has then been filed in
court and is not required to be served on the defendant, whichever period is
shorter.
28 U.S.C. § 1446(b). In this case, Elliott formally served ASIC by serving the
Commissioner, ASIC’s statutory agent for service of process, simultaneously with the
summons and complaint via certified mail. The Commissioner accepted the service on
August 12, 2016. ASIC actually received the summons and complaint from the
Commissioner on August 24, 2016. ASIC filed its notice of removal on September 23,
2016. Thus, ASIC removed the action more than thirty days from service on the
8
Commissioner, but less than thirty days from when ASIC actually received the complaint
from the Commissioner. Elliott argues that the 30-day time frame for filing notice of
removal began when she served the Commissioner, and that ASIC therefore missed the
removal deadline laid out in § 1446(b). Consequently, she argues, the district court
should have remanded the case back to state court.
The general rule, as established by the Supreme Court in Murphy Brothers, is that
the time for counting the days for filing notice of removal under § 1446(b) starts when the
defendant is formally served with the summons and complaint making the defendant an
official party to the action and requiring the defendant to appear. Murphy Bros., Inc. v.
Michetti Pipe Stringing, Inc., 526 U.S. 344, 347–48 (1999) (holding that defendant’s
informal receipt of the complaint did not start the time for filing). However, the parties
do not cite and we have not found published authority in this circuit or any other
addressing whether the 30-day period for filing notice of removal in § 1446(b) is
triggered by service on a statutory agent.
We have, however, had occasion to address this question in an unpublished
opinion. In Gordon v. Hartford Fire Insurance Company, as here, the defendant filed
notice of removal within 30 days of actually receiving the complaint, but not within 30
days of service on its statutory agent for service of process. 105 F. App’x 476, 480 (4th
Cir. 2004). Rejecting the plaintiff’s contention that the case should have been remanded
for untimely filing for notice of removal, we stated that “the overwhelming majority of
district courts to consider the question have held that ‘[w]hen service is effected on a
statutory agent, rather than on an agent appointed by the defendant, the time to remove
9
the action to federal court does not start to run until the defendant actually has received a
copy of the complaint.’ ” Id. (quoting Lilly v. CSX Transp., Inc., 186 F. Supp. 2d 672,
673 (S.D. W. Va. 2002)) (citations omitted). In so doing, we recognized a statutory agent
exception to the Murphy Rule and held that when a statutory agent is served, the time to
remove the case runs from the defendant’s actual receipt of the complaint. See id. at
480–81. Indeed, as we noted in Gordon, the vast majority of district courts to have
considered this issue agree with this approach. Id. at 480; see also Tucci v. Hartford Fin.
Servs. Grp., Inc., 600 F. Supp. 2d 630, 632 n.3, 632–33 (D.N.J. 2009) (collecting cases
and stating that it is the “well-established rule that the removal period begins not with
service on a statutory agent, but with receipt by defendants or their true agent”); 14C
Charles Alan Wright, et al., Federal Practice and Procedure § 3731 (4th ed. Apr. 2017)
(“At one time it was not clear whether service on a statutory agent . . . was sufficient to
commence the time period for removal . . . . Realistically speaking, of course, statutory
agents are not true agents but merely are a medium for transmitting the relevant papers.
Accordingly, it now appears to be settled law that the time for removal begins to run only
when the defendant or someone who is the defendant’s agent-in-fact receives the notice
via service, as prescribed in the Murphy Brothers case.”).
Elliott disagrees with the majority approach and instead argues that the plain
language of § 1446(b) and the Supreme Court’s interpretation of this statute require
holding that the filing period commences when the defendant is formally served, and that
it makes no difference that service was on a statutory agent. See § 1446(b); Barbour, 640
F.3d at 605 (stating, in a multi-defendant removal case, that “[i]f a case involves a single
10
defendant, the operation of § 1446(b) is straightforward. The defendant must file the
notice of removal within thirty days of service.”). However, Elliott does not cite and we
cannot find a single controlling case involving service on a statutory agent that supports
her view. Additionally, we find her argument about the plain meaning of the statute
unavailing, as the statute itself says nothing about service on a statutory agent. See
§ 1446(b) (defendant must file for removal “within 30 days after the receipt by the
defendant, through service or otherwise, of a copy of the initial pleading” (emphasis
added)).
Although we believe a straightforward reading of the statute supports holding that
the 30-day period for submitting notice of removal in § 1446(b) is not triggered by
service on a statutory agent, our understanding of the congressional intent of this statute
also informs our analysis. See Medina v. Wal-Mart Stores, Inc., 945 F. Supp. 519, 520
(W.D.N.Y. 1996) (“A strict reading of [§ 1446(b)] supports the position that the thirty-
day period does not begin to run until the defendant actually receives a copy of the
pleadings.”). It is clear that the congressional intent in enacting and amending § 1446(b)
was to provide the defendant with adequate time to consider filing for removal, and to
create uniform time limits for responding to a complaint. See Murphy Bros., 526 U.S. at
354 (stating that its interpretation of § 1446(b) as requiring formal service on the
defendant to commence the 30-day removal period “adheres to tradition . . . and assures
defendants adequate time to decide whether to remove an action to federal court”); H.R.
Rep. No. 80-308, at A135 (1947) (stating that § 1446(b)’s revisions “will give adequate
time and operate uniformly throughout the Federal jurisdiction”). As originally enacted,
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§ 1446(b) attempted to provide uniform removal periods by requiring that “[t]he petition
for removal of a civil action or proceeding may be filed within twenty days after
commencement of the action or service of process, whichever is later.” Act of June 25,
1948, Pub. L. No. 80-773, § 1446(b), 62 Stat. 869, 939. Under the original version of the
statute, however, disparities in time limits still existed between the states because states
defined “commencement of the action” differently. In some states, the period for filing
for removal could expire before the defendant obtained the complaint or before the
complaint was ever filed. For example, in New York, a plaintiff could commence an
action by service of the summons, without ever serving or filing a complaint, allowing
the time limit for filing notice of removal to expire before the complaint was even filed.
See Shoemaker v. GAF Corp., 814 F. Supp. 495, 497 (W.D. Va. 1993) (describing the
“New York Rule” for commencing a suit). To reduce this disparity, in 1949, Congress
amended § 1446(b), providing, in part, that the defendant must file notice of removal
“within twenty days after the receipt by the defendant, through service or otherwise, of a
copy of the initial pleading . . . .” Act of May 24, 1949, Pub. L. No. 81-72, § 83(a), 63
Stat. 89, 101; S. Rep. No. 81-303, at 6 (1949). Additionally, Congress amended
§ 1446(b) in 1965 to extend the time for filing from 20 days to 30 days, providing the
defendant more time to consider filing for removal. Act of Sept. 29, 1965, Pub. L. No.
89-215, 79 Stat. 887, 887; S. Rep. No. 89-712, at 2 (1965).
Serving a statutory agent does not guarantee that the defendant is provided with
actual notice of the complaint or adequate time to decide whether to remove a case. To
hold that the filing period commences when the statutory agent is served, therefore,
12
would allow for the filing deadline to pass before the defendant actually receives a copy
of the complaint―the exact situation Congress previously sought to avoid when it
amended § 1446(b) to its current state. See Tucci, 600 F. Supp. 2d at 634 (“To find to the
contrary would contravene Congress’ intent to ensure that defendants know that they are
the subject of a suit and as well as the basis for the suit before the removal period
begins.” (citing Murphy Bros., 526 U.S. at 351–52) (emphasis in original)); Lilly, 186 F.
Supp. 2d at 674 (“If the removal period began running upon receipt of the complaint by
the statutory agent, the privilege of a defendant to remove could be easily curtailed or
abrogated completely.” (internal quotation marks omitted)). We agree that “the
defendant’s right to a federal forum should not depend upon the rapidity and accuracy
with which the statutory agent informs its principal of the commencement of litigation
against it.” Medina, 945 F. Supp. at 521; see also Elliott v. Wal-Mart Inc., No. 97-3526,
1998 WL 385911, at *2 (6th Cir. July 2, 1998) (unpublished) (declining to reverse a
default judgment motion when defendant did not receive a copy of the complaint that was
served on its statutory agent and then misfiled by Wal-Mart’s switchboard operator
because “[i]t was Wal-Mart’s own choice to rely on its switchboard operator to sort and
file incoming legal documents”); Youren v. State Farm Mut. Auto. Ins. Co., No. 2:14-CV-
00117-JAD, 2014 WL 2772105, at *2 (D. Nev. June 18, 2014) (“Conditioning a
defendant’s removal right on the actions of an agent who the defendant did not choose
would place the defendant at the mercy of the diligence of the agent and the postal
service.”).
Consequently, we now hold that service on a statutory agent is not service on the
13
defendant within the meaning of § 1446(b). Here, ASIC received the complaint on
August 24, 2016, and filed notice of removal on September 23, 2016, within the 30-day
time period provided in § 1446(b). Therefore, the district court did not err in determining
that ASIC timely filed notice of removal and in denying Elliott’s motion for remand
based on her allegations of untimely filing.
III.
We next address Elliott’s assertion that the district court erred in determining that
diversity jurisdiction exists and denying her motion to remand to state court. We review
questions of subject matter jurisdiction de novo. Mayes, 198 F.3d at 460. Specifically,
Elliott contends that this action by an insured against her insurance company is a “direct
action” within the meaning of 28 U.S.C. § 1332(c)(1), such that ASIC must be deemed a
resident of the state in which she is a resident, destroying complete diversity and making
removal improper. We disagree.
A defendant may remove “any civil action brought in a State court of which the
district courts of the United States have original jurisdiction.” 28 U.S.C. § 1441(a).
When original jurisdiction is based on diversity of citizenship, the cause of action must
be between parties of completely diverse state citizenship, that is, no plaintiff may be a
citizen of the same state as any defendant, and the amount in controversy must exceed
$75,000, exclusive of interest and costs. See 28 U.S.C. § 1332(a)(1); Strawbridge v.
Curtiss, 7 U.S. (3 Cranch) 267 (1806). The relevant statute provides that:
a corporation shall be deemed to be a citizen of every State and foreign
state by which it has been incorporated and of the State or foreign state
14
where it has its principal place of business, except that in any direct action
against the insurer of a policy or contract of liability insurance, whether
incorporated or unincorporated, to which action the insured is not joined as
a party-defendant, such insurer shall be deemed a citizen of—(A) every
State and foreign state of which the insured is a citizen . . . .
§ 1332(c)(1) (emphases added). Elliott asserts that the plain language of the statute
compels the conclusion that an action brought by an insured against his or her insurer is a
direct action because it is an action against the insurer in which the insured is not joined
as a party defendant. She contends that if Congress wanted to exclude actions such as
this one from being direct actions under the meaning of § 1332(c)(1), it could have
expressly provided for the exception.
The term “direct action” is not defined in the relevant statute, nor has this Court
ruled on its meaning in § 1332(c)(1). However, every circuit to have considered this
issue has held that a “direct action” in § 1332(c)(1) does not include an insured’s suit
against his or her own insurer for breach of the terms of the insurance policy or the
insurer’s own alleged tortious conduct. See, e.g., Ljuljdjuraj v. State Farm Mut. Auto.
Ins. Co., 774 F.3d 908, 913 (6th Cir. 2014); Nat’l Athletic Sportswear, Inc. v. Westfield
Ins. Co., 528 F.3d 508, 511 n.2 (7th Cir. 2008) (holding that an insured’s suit against its
own insurer for failure to settle a claim in good faith was not a “direct action”); Chevalier
v. Reliance Ins. Co. of Ill., 990 F.2d 625, 625 (5th Cir. 1993) (unpublished); Rosa v.
Allstate Ins. Co., 981 F.2d 669, 675 (2d Cir. 1992); McGlinchey v. Hartford Accid. &
Indem. Co., 866 F.2d 651, 653 (3d Cir. 1989); Tuck v. United Servs. Auto. Ass’n, 859
F.2d 842, 847 (10th Cir. 1988), cert. denied, 489 U.S. 1080 (1989); Fortson v. St. Paul
Fire & Marine Ins. Co., 751 F.2d 1157, 1159 (11th Cir. 1985); Beckham v. Safeco Ins.
15
Co. of Am., 691 F.2d 898, 902 (9th Cir. 1982) (holding that an insured’s bad faith suit
against her insurer was not a “direct action” since it was based on the insurer’s own
tortious conduct); White v. U. S. Fid. & Guar. Co., 356 F.2d 746, 748 (1st Cir. 1966).
Instead, our sister circuits have concluded that a “direct action” under § 1332(c)(1)
refers to “a tort claim in which the insurer essentially stands in the shoes of its legally
responsible insured . . . .” Rosa, 981 F.2d at 677; see also Searles v. Cincinnati Ins. Co.,
998 F.2d 728, 729 (9th Cir. 1993) (“[U]nless the cause of action urged against the
insurance company is of such a nature that the liability sought to be imposed could be
imposed against the insured, the action is not a direct action.” (internal quotation marks
omitted)). We now join our sister circuits and hold that “direct action” in § 1332(c)(1)
does not include an insured’s suit against his or her own insurer for breach of the terms of
the insurance policy or the insurer’s own alleged tortious conduct.
Elliott brought this action as an insured person against ASIC, her insurance
company, alleging an unfair or deceptive practice in the settling of insurance claims in
violation of state law. This is not a direct action within the meaning of § 1332(c)(1) and,
therefore, § 1332(c)(1)’s residency determination for direct action suits does not apply.
Elliott is a North Carolina resident and ASIC is a corporation organized under the laws of
the State of Indiana with its principal place of business in Boston, Massachusetts, thus
satisfying § 1332(a)(1)’s complete diversity requirement. As the parties agree, the
amount in controversy is also satisfied. See § 1332(a)(1). Therefore, diversity
jurisdiction exists and the district court did not err in denying Elliott’s motion for remand
based on an alleged lack of subject matter jurisdiction.
16
IV.
Finally, we address Elliott’s assertion that the district court erred in granting
ASIC’s Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can
be granted. ASIC contends that Elliott failed to plead facts that plausibly state a claim
that ASIC’s conduct constituted an unfair or deceptive practice in the settling of
insurance claims in violation of state law. Finding no error, we affirm.
We review de novo a district court’s Rule 12(b)(6) dismissal. Mayes, 198 F.3d at
460. To survive a Rule 12(b)(6) motion, the complaint “must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007)). “In reviewing a 12(b)(6) dismissal, we construe factual allegations in
the nonmoving party’s favor, treating them as true, and we will affirm a dismissal for
failure to state a claim only if it appears that the plaintiffs would not be entitled to relief
under any facts which could be proved in support of their claim.” Mayes, 198 F.3d at 460
(internal quotation marks omitted).
North Carolina’s Unfair and Deceptive Trade Practices Act (“UDTPA”), N.C.
Gen. Stat. § 75-1.1, prohibits unfair and deceptive acts or practices, generally, and North
Carolina’s “Unfair Claim Settlement Practices” statute, N.C. Gen. Stat. § 58-63-15(11),
defines unfair practices in the settlement of insurance claims. 6 As relevant here, § 75-1.1
See N.C. Gen. Stat. § 75-1.1(a) (“Unfair methods of competition in or affecting
6
commerce, and unfair or deceptive acts or practices in or affecting commerce, are
17
provides a private cause of action for violations, whereas § 58-63-15(11) does not;
instead “the remedy for a violation of section 58-63-15 is the filing of a section 75-1.1
claim.” Country Club of Johnston Cty., Inc. v. U.S. Fid. & Guar. Co., 563 S.E.2d 269,
278 (N.C. Ct. App. 2002) (internal quotation marks omitted). Thus, an individual may
file an independent § 75-1.1 claim, or may file a § 75-1.1 claim that relies on a violation
of § 58-63-15(11). See Gray v. N.C. Ins. Underwriting Ass’n, 529 S.E.2d 676, 684 (N.C.
2000).
To establish a violation of § 58-63-15(11), a complainant must show that the
defendant committed one of the enumerated unfair practices in the settlement of
insurance claims, and that such conduct was committed or performed “with such
frequency as to indicate a general business practice.” § 58-63-15(11). To establish a
claim under § 75-1.1(a), a complainant must show: (1) an unfair or deceptive act or
practice, (2) in or affecting commerce, (3) which proximately caused injury to plaintiff.
Gray, 529 S.E.2d at 681. “The determination of whether an act or practice is an unfair or
deceptive practice . . . is a question of law for the court.” Id. (citation omitted). “A
declared unlawful.”); § 58-63-15(11) (“Unfair Claim Settlement Practices.―Committing
or performing with such frequency as to indicate a general business practice of any of the
following: Provided, however, that no violation of this subsection shall of itself create
any cause of action in favor of any person other than the Commissioner:  . . . (f) Not
attempting in good faith to effectuate prompt, fair and equitable settlements of claims in
which liability has become reasonably clear; (g) Compelling [the] insured to institute
litigation to recover amounts due under an insurance policy by offering substantially less
than the amounts ultimately recovered in actions brought by such insured; (h) Attempting
to settle a claim for less than the amount to which a reasonable man would have believed
he was entitled . . . .”).
18
practice is unfair when it offends established public policy as well as when the practice is
immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.”
Walker v. Fleetwood Homes of N.C., Inc., 653 S.E.2d 393, 398 (N.C. 2007) (internal
quotation marks omitted). However, “such conduct that violates [§ 58-63-15(11)]
constitutes a violation of N.C.G.S. § 75-1.1, as a matter of law, without the necessity of
an additional showing of frequency indicating a ‘general business practice,’ ” because
“such conduct is inherently unfair, unscrupulous, immoral, and injurious to
consumers . . . .” Gray, 529 S.E.2d at 683 (holding as to violations of § 58-63-15(11)(f),
specifically); Country Club, 563 S.E.2d at 279 (extending Gray to apply to all conduct
described in § 58-63-15(11)). 7
7
We note that it is unclear whether conduct that violates § 58-63-15(11) is a per se
violation of § 75-1.1, or instead whether that conduct satisfies § 75-1.1’s conduct
requirement of an unfair or deceptive act or practice, still requiring the complainant to
show that the act or practice was in or affecting commerce and proximately caused injury
to the plaintiff before finding a violation of § 75-1.1. Compare Page v. Lexington Ins.
Co., 628 S.E.2d 427, 429 (N.C. Ct. App. 2006) (reversing defendant’s motion to dismiss
on the § 75-1.1 claim because “[p]laintiffs’ allegations, taken as true, are sufficient to
establish violations of N.C.G.S. § 58-63-15(11)(b), (d), (e), and (f). Therefore, pursuant
to Gray [529 S.E.2d 676,] and Country Club of Johnston Cty., Inc., [563 S.E.2d 269,]
plaintiffs stated a claim for unfair and deceptive trade practices”) and ABT Bldg. Prods.
Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 472 F.3d 99, 125 (4th Cir. 2006)
(“Because the evidence supports the jury’s finding that National Union engaged in
conduct violating section 58-63-15(11)(f) . . . , and because such a violation is ‘inherently
unfair’ and a violation of the UDTPA, the district court’s ruling that National Union
violated the UDTPA was not erroneous.”), with Nelson v. Hartford Underwriters Ins.
Co., 630 S.E.2d 221, 233 (N.C. Ct. App. 2006) (“[N]one of the actions . . . violated
N.C.G.S. § 58-63-15(11)(a), (c), (d), (e), or (n). Therefore we conclude that plaintiffs
have shown no unfair or deceptive practices . . . which would support a claim under
N.C.G.S. § 75-1.1. Plaintiffs also cannot show how any of the actions taken by Hartford
were the proximate cause of their injury . . . .” (emphases added)) and Federated Mut.
Ins. Co. v. Williams Trull Co., 838 F. Supp. 2d 370, 421 (M.D.N.C. 2011); see generally
19
Elliott’s complaint alleges that ASIC violated § 58-63-15(11) by its conduct in
response to her UIM claim, and that this conduct also constitutes a violation of § 75-1.1,
as a matter of law. 8 Consequently, to survive a motion to dismiss, we must find that
Elliott pleaded facts that plausibly state a claim that ASIC violated § 58-63-15(11), and
that in so doing, ASIC also violated § 75-1.1. In general, Elliott argues that ASIC
violated these statutes by forcing her to initiate arbitration in order to have any of her
claim paid. Specifically, Elliott contends that ASIC violated § 58-63-15(11) when it “did
not attempt in good faith to effectuate a prompt, fair and equitable settlement of [her]
claims in which liability had become reasonably clear,” J.A. 19 (quoting § 58-63-
15(11)(f)); when it “compelled [her] to institute litigation to recover amounts due under
the UIM provisions of her . . . insurance policy” by first refusing to offer any amount of
UIM payment and then making “token offers” preceding arbitration that were
“substantially less than the amount of UIM coverage ultimately recovered,” id. (quoting
§ 58-63-15(11)(g)); and when it “attempted to settle [her] claim for an amount of UIM
coverage less than the amount . . . a reasonable person would have believed Elliott was
Matthew W. Sawchak, Refining Per Se Unfair Trade Practices, 92 N.C. L. Rev. 1881
(2014) (describing courts’ inconsistent approaches to § 58-63-15(11)’s “per se” impact on
§ 75-1.1). Because we hold that Elliott failed to plausibly state a claim that ASIC
committed any of the conduct prohibited in § 58-63-15(11), however, it is unnecessary to
resolve this question.
8
Elliott could have argued that ASIC violated § 75-1.1 independently from a
violation of § 58-63-15(11). See Gray, 529 S.E.2d at 684. However, Elliott did not make
such an argument in her complaint or in her briefs to this Court.
20
entitled to recover,” id. at 20 (quoting § 58-63-15(11)(h)). ASIC argues that Elliott failed
to plausibly state a claim under either statute because state law does not mandate
settlement of a UIM claim before liability is established and because, here, liability was
established in arbitration and ASIC paid the arbitration award once entered.
Additionally, ASIC argues that there can be no violation of § 75-1.1 because Elliott has
failed to allege any injury.
UIM coverage is only triggered in certain circumstances. Under North Carolina
law, “[u]nderinsured motorist coverage is deemed to apply when, by reason of payment
of judgment or settlement, all liability bonds or insurance policies providing coverage for
bodily injury caused by the ownership, maintenance, or use of the underinsured highway
vehicle have been exhausted.” N.C. Gen. Stat. § 20-279.21(b)(4). Even once UIM
liability is triggered, however, such liability is still “derivative and conditional,” in that
“[u]nless [the plaintiff] is ‘legally entitled to recover damages’ . . . from the uninsured
motorist[,] the contract upon which he sues precludes him from recovering against
defendant.” Brown v. Lumbermens Mut. Cas. Co., 204 S.E.2d 829, 834 (N.C. 1974).
“To be ‘legally entitled to recover damages’ a plaintiff must not only have a cause of
action but a remedy by which he can reduce his right to damages to judgment.” Id. at
833. Additionally, the amount due under the UIM policy “is conclusively determined in
litigation against the [] motorist . . . .” Chew v. Progressive Universal Ins. Co, No 5:09-
CV-351-FL, 2010 WL 4338352, at *10 (E.D.N.C. Oct. 25, 2010) (first citing Brown, 204
S.E.2d at 834, then citing McLaughlin v. Martin, 374 S.E.2d 455, 456 (N.C. Ct. App.
1988)). Therefore, under state law, a plaintiff is legally entitled to recover under a UIM
21
policy only once a judgment is issued against the underinsured motorist determining
liability and damages owed to the plaintiff. ASIC was thus not required to settle Elliott’s
UIM claim until after it was determined that Elliott was legally entitled to recover from
Jones―i.e., until after judgment was entered in Elliott v. Jones. With this in mind, we
address Elliott’s specific arguments.
Elliott asserts that ASIC’s conduct violates Section 58-63-15(11)(f), (g), and (h).
Section 58-63-15(11)(f) prohibits “[n]ot attempting in good faith to effectuate prompt,
fair and equitable settlements of claims in which liability has become reasonably
clear . . . .” (emphasis added). We conclude that Elliott did not plausibly state a claim
upon which relief can be granted based on this subsection because liability did not
become reasonably clear until after a judgment was entered in Elliott v. Jones, and,
consequently, ASIC had no obligation to settle Elliott’s claim before this time.
Section 58-63-15(11)(g) prohibits “[c]ompelling [the] insured to institute litigation
to recover amounts due under an insurance policy by offering substantially less than the
amounts ultimately recovered in actions brought by such insured . . . .” (emphasis added).
Elliott contends ASIC violated this subsection by first refusing to offer any settlement
under the UIM policy, and then making “token offers” preceding arbitration. As with her
claim under § 58-63-15(11)(f), however, we conclude that Elliott did not plausibly state a
claim upon which relief can be granted based on this subsection because no amount was
due to Elliott until liability had been determined, and, consequently, ASIC’s alleged
failure to make higher settlement offers prior to that time does not violate the statute.
Section 58-63-15(11)(h) prohibits “[a]ttempting to settle a claim for less than the
22
amount to which a reasonable man would have believed he was entitled . . . .” In her
complaint, Elliott alleges that ASIC violated this subsection by attempting to settle the
claim for less than the amount of UIM coverage provided by her policy. In her brief to
this Court, she explains that it “can be reasonably inferred” that the amount she
ultimately recovered is “ ‘the amount to which a reasonable man would have believed
[she] was entitled’ to recover,” and that initially making no offer and later making “token
offers” consequently violated § 58-63-15(11)(h). Reply Br. 23 (quoting § 58-63-
15(11)(h)).
This argument has no merit, even when viewed in the light most favorable to
Elliott. First, Elliott has not alleged any facts indicating that a reasonable person would
have believed she was entitled to either the maximum coverage provided under the
policy, or the amount ultimately recovered, before the fact or amount of liability had been
determined. The mere fact of having UIM coverage does not entitle the insured to
recover at all, or to recover the maximum amount of coverage. This is particularly true
when the fact of liability has not been conclusively determined and, thus, a reasonable
person should not believe they are entitled to a settlement offer for such an amount.
Additionally, it cannot be that an insurance company per se engages in an unfair or
deceptive trade practice simply because the settlement offers made are less than the final
judgment rendered―especially when, as here, the amount to which Elliott was entitled
was first determined in arbitration, after all settlement offers had been made. See Chew,
2010 WL 4338352, at *11 (“North Carolina law establishes the amount of the claim as
that which could be recovered from the [] motorist in tort, and this had not been
23
established at the time of defendant’s settlement offers.” (first citing Brown, 204 S.E.2d
at 834, then citing McLaughlin, 374 S.E.2d at 456)). Consequently, Elliott has failed to
plausibly state a claim that ASIC’s alleged token offers or its refusal to make an offer
were less than what a reasonable man would have believed Elliott was entitled to.
Therefore, we hold that the district court did not err in granting ASIC’s Rule
12(b)(6) motion to dismiss because Elliott failed to state a claim upon which relief could
be granted under § 58-63-15(11), and consequently also failed to state a claim upon
which relief could be granted under § 75-1.1, as a matter of law.
V.
For the foregoing reasons, the judgment of the district court is hereby
AFFIRMED.
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