In June of 1982, the defendant, Massachusetts Mutual Life Insurance ("MMLIC"), agreed to insure plaintiff Jonathan H. Muller ("Muller") under a disability insurance policy. The policy was issued from MMLIC's headquarters in Massachusetts and was signed in Maryland, Muller's state of residence.
On October 14, 1982, approximately four months later, the policy lapsed when Muller neglected to pay the required premiums. Muller waited five months before rectifying this situation, but on March 14, 1983, his application for reinstatement was accepted by MMLIC.
Approximately one week later, on March 21, 1983, Muller asserts that he became disabled. Although he properly applied for benefits under his reinstated policy, Muller claims that MMLIC has refused to honor his claim.
Muller contends that MMLIC's refusal to pay benefits to him set in motion a chain reaction which has severely injured him. As a result of his inability to procure proper medical treatment, Muller states that he endured great physical pain and was forced to forego essential surgery to his back, which has resulted in permanent damage thereto. Moreover, Muller asserts that as a result of the pain in his back, and an inability to soothe it with surgery, he became addicted to prescribed pain killers. Muller claims to have incurred substantial debts in obtaining these drugs and claims to have suffered greatly during the subsequent period of withdrawal from them. In addition, Muller desires reimbursement for psychological distress and mental anguish, lost wages, reduced earning capacity, and loss of a credit rating.
Muller's complaint is in three counts: (1) breach of the insurance contract (Count I); (2) breach of an implied duty of good faith owed by an insurer to an insured (Count II); and (3) violation of Massachusetts' insurance code, prohibiting unfair methods of competition and unfair and deceptive acts and practices in the insurance industry, Mass. Gen. Laws Ann. ch. 176D (West 1972 & Supp. 1986) (Count III). In this motion, MMLIC seeks to dismiss Count II and Count III of Muller's complaint.
A. Count II: Allegation of Bad Faith
In his complaint, Muller identifies conduct by MMLIC which, he claims, constitutes a breach of the defendant's duty of good faith. MMLIC argues that regardless of whether Muller's claims are legitimate, the state law applicable in this case does not afford the relief requested by the plaintiff; thus, the action must be dismissed. The validity of MMLIC's argument depends upon what law is applicable in this case.
The instant action is in federal court on the basis of diversity jurisdiction. 28 U.S.C. § 1331. Muller is a resident of Maryland, and MMLIC is incorporated and headquartered in Massachusetts. In diversity cases, a federal court is bound to apply the state law of the jurisdiction in which it resides to resolve substantive issues, Erie Railroad Company v. Tompkins, 304 U.S. 64, 78, 82 L. Ed. 1188, 58 S. Ct. 817 (1938), and a state's choice of law rules is a substantive issue under Erie. Klaxon Company v. Stentor Electric Manufacturing Company, 313 U.S. 487, 496-97, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). The District of Columbia has adopted the governmental interest analysis approach to resolve choice of law questions. Williams v. Williams, 390 A.2d 4, 5 (D.C. 1978). This approach requires a court "to evaluate the governmental policies underlying the applicable conflicting laws and to determine which jurisdiction's policy would be most advanced by having its law applied to the facts of the case under review." Id. at 5-6. In the case at bar, there are potentially two interested states: Maryland and Massachusetts. The law of one of these states will control the final disposition of this case.
Notwithstanding the plaintiff's presumption that there is a conflict between these two states' laws, the Court nonetheless declines to engage in a lengthy interest analysis. Choice of law inquiries are unnecessary in the District of Columbia when the policies of one state would be advanced by the application of its law and the policies of those states claimed to be in conflict would not be advanced by application of their law. See Biscoe v. Arlington County, 238 U.S. App. D.C. 206, 738 F.2d 1352, 1360 (D.C. Cir. 1984), cert. denied, 469 U.S. 1159, 105 S. Ct. 909, 83 L. Ed. 2d 923 (1985). Likewise, there is no need to balance substantive policies when the law of two or more states, alleged to be in conflict, are in fact compatible. In both situations, a court confronts only a "false conflict"; there is no real choice of law, and the court should apply the uncontested policy. Id.; Williams v. Rawlings Truck Line Inc., 123 U.S. App. D.C. 121, 357 F.2d 581, 586 (D.C. Cir. 1965).
The issue before this Court is an archetypal false conflict. The state of Maryland expressly rejects tort claims for bad faith based on an insurer's refusal to pay benefits to a first party insured. Caruso v. Republic Insurance Company, 558 F. Supp. 430, 432 (D. Md. 1983). Thus, the plaintiff cannot bring his claim if Maryland's law applies.
Moreover, such an action will not lie in Massachusetts. A Massachusetts insurer does have a duty to act in good faith toward its insured. See Murach v. Massachusetts Bonding and Insurance Company, 339 Mass. 184, 158 N.E.2d 338, 341 (Mass. 1959). But in Massachusetts punitive damages are not permitted unless authorized by statute. Lowell v. Massachusetts Bonding and Insurance Company, 313 Mass. 257, 47 N.E.2d 265, 272 (Mass. 1943). The plaintiff's Count II is concededly one for punitive damages. See Plaintiff's Opposition at 4. Thus, the Court directs its attention to the applicable Massachusetts statute, providing that
In any action to recover on an insurance policy, a court may award punitive damages in addition to the amount of the claim, not to exceed twenty-five per cent [sic] of said claim if the court finds that the party seeking to recover on the insurance policy has been damaged by a violation of sections three or four that has been determined by the commissioner [of insurance].
Mass. Gen. Laws Ann. ch. 176D (West 1972 & Supp. 1986) (emphasis added). This statutory language precludes Muller from recovering punitive damages since the Massachusetts insurance commissioner has not found MMLIC to be in violation of section three or four of Chapter 176D.
Thus, Muller cannot proceed in Massachusetts on his claim for insurer bad faith since the remedy he desires is unavailable to him in that state.
As the law of Maryland expressly prohibits Muller's action and Massachusetts will not enforce his claim, there is no conflict--the laws of both states are compatible. Count II creates a false conflict of laws. As neither Maryland nor Massachusetts is willing to grant Muller the relief he requests, the defendant's motion to dismiss Count II on the basis of Rule 12(b)(6) is granted.
B. Count III: Allegation of Deceptive Trade Practices
Muller alleges that MMLIC has violated a provision of the Massachusetts' insurance code which prohibits unfair methods of competition and unfair and deceptive acts and practices in that industry. See Mass. Gen. Laws Ann. ch. 176D § 3(9) (West 1972 & Supp. 1986). Muller seeks to recover $100,000 in damages for this violation.
MMLIC would have this Court dismiss this claim on the ground that it fails to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). Regarding this provision, the United States Supreme Court has held that
a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.