United States District Court for the District of Columbia
August 2, 2004.
BURLINGTON INSURANCE COMPANY, Plaintiff,
OKIE DOKIE, INC. et al., Defendants.
The opinion of the court was delivered by: RICARDO URBINA, District Judge
DENYING THE DEFENDANT'S MOTION TO DISMISS
This matter comes before the court on Defendant C.J. Thomas'
("C.J. Thomas") motion to dismiss for failure to state a claim on
which relief can be granted pursuant to Federal Rule of Civil
Procedure 12(b)(6). C.J. Thomas asserts that the complaint fails
to properly allege (1) a duty of care owed by the defendant to
the plaintiff and (2) that the plaintiff's reliance on the
alleged misrepresentations was reasonable. Because the plaintiff
has adequately pled negligent misrepresentation, the court denies
C.J. Thomas' Motion to Dismiss.
A. Factual History
Defendant Okie Dokie, Inc. ("Okie Dokie") is the owner and
operator of Dream, an establishment in the District of Columbia
described in the complaint as a nightclub. Compl. ¶¶ 8, 10. C.J. Thomas, an insurance broker, prepared an application
for insurance on behalf of Okie Dokie for a commercial general
liability insurance policy to cover Dream. Id. ¶¶ 3, 23, 26.
The application described Dream as a restaurant, claiming that:
(1) the previous insurance carrier cancelled its policy primarily
because Dream had a dance floor; (2) Dream does not sponsor
"Social Events;" and (3) Dream's $4 million in total sales is
comprised of $3 million food sales and $1 million in liquor
sales. Id. ¶¶ 25, 26-30. In reliance on these statements,
plaintiff Burlington Insurance Company ("Burlington") issued a
commercial general liability policy to Okie Dokie on June 28,
2002. Id. ¶¶ 34, 36.
On August 10, 2002, an underaged drunk driver who had allegedly
been drinking at Dream, struck and killed a police officer named
Hakim Farthing. Id. ¶ 44. Farthing's estate sued Okie Dokie for
$50 million on October 1, 2002 ("Farthing Action"). Id. ¶ 45.
Burlington is currently defending Okie Dokie in the Farthing
Action. Id. ¶ 46.
B. Procedural History
In response to the Farthing Action, Burlington filed this
action against Okie Dokie and C.J. Thomas on September 26, 2003.
See generally Compl. With regard to Okie Dokie, Burlington
seeks: (1) a declaration that Burlington has no duty to defend or
indemnify Okie Dokie in the Farthing Action; (2) rescission of
the insurance policy; and (3) restitution for all costs
Burlington has paid with respect to the Farthing Action. Id.
With regard to C.J. Thomas, Burlington seeks damages stemming
from alleged negligent misrepresentation in the insurance
application. Id. ¶¶ 70-76. The complaint also alleges that C.J.
Thomas failed to disclose that Dream is a nightclub, which hosts
concerts, seeks the patronage of persons age eighteen to twenty, derives over 25% of
its revenue from the sale of alcoholic beverages, and regularly
features an "open bar." Id. ¶ 72. The plaintiff asserts that
"C.J. Thomas was under a duty to disclose one or more of the
facts identified in ¶ 72 to Burlington." Id. ¶ 73. The
complaint alleges that these false statements and omissions were
material to the plaintiff's decision to issue the policy to Okie
Dokie. Id. ¶ 74. The plaintiff claims that it "reasonably
relied on one or more of the false statements and omissions set
forth in ¶¶ 71 and 72. Id. ¶ 75.
C.J. Thomas moved to dismiss Burlington's complaint on the
grounds that the complaint inadequately asserts all essential
elements of the negligent misrepresentation claim. Def.'s Mot. to
Dismiss at 1 ("Def.'s Mot."). The court now turns to that motion.
A. Legal Standard for Motion to Dismiss for Failure to State a
A Rule 12(b)(6) motion to dismiss tests the legal sufficiency
of a complaint. Browning v. Clinton, 292 F.3d 235
, 242 (D.C.
Cir. 2002). The complaint need only set forth a short and plain
statement of the claim, giving the defendant fair notice of the
claim and the grounds upon which it rests. Kingman Park Civic
Ass'n v. Williams, 348 F.3d 1033
, 1040 (D.C. Cir. 2003) (citing
FED R. CIV. P. 8(a)(2) and Conley v. Gibson, 355 U.S. 41
(1957)). "Such simplified notice pleading is made possible by the
liberal opportunity for discovery and the other pre-trial
procedures established by the Rules to disclose more precisely
the basis of both claim and defense to define more narrowly the
disputed facts and issues." Conley, 355 U.S. at 47-48 (internal
quotation marks omitted). It is not necessary for the plaintiff
to plead all elements of his prima facie case in the complaint, Swierkiewicz v. Sonoma N.A.,
534 U.S. 506
, 511-14 (2002), or "plead law or match facts to
every element of a legal theory." Krieger v. Fadely,
211 F.3d 134
, 136 (D.C. Cir. 2000) (internal quotation marks and citation
Accordingly, "the accepted rule in every type of case" is that
a court should not dismiss a complaint for failure to state a
claim unless the defendant can show beyond doubt that the
plaintiff can prove no set of facts in support of his claim that
would entitle him to relief. Warren v. District of Columbia,
353 F.3d 36, 37 (D.C. Cir. 2004); Kingman Park, 348 F.3d at
1040. Thus, in resolving a Rule 12(b)(6) motion, the court must
treat the complaint's factual allegations including mixed
questions of law and fact as true and draw all reasonable
inferences therefrom in the plaintiff's favor. Macharia v.
United States, 334 F.3d 61, 64, 67 (D.C. Cir. 2003); Holy Land
Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156, 165 (D.C.
Cir. 2003); Browning, 292 F.3d at 242. While many well-pleaded
complaints are conclusory, the court need not accept as true
inferences unsupported by facts set out in the complaint or legal
conclusions cast as factual allegations. Warren, 353 F.3d at
39; Browning, 292 F.3d at 242.
B. Legal Standard For Negligent Misrepresentation
"A federal court sitting in diversity must apply state law to
the substantive issues before it." A.I. Trade Fin., Inc. v.
Petra Int'l Banking Corp., 62 F.3d 1454, 1458 (D.C. Cir. 1995)
(citing Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938)).
Accordingly, the court applies the law of the District of
Columbia to the plaintiff's negligent misrepresentation claim.
Under District of Columbia law, a claim for negligent
misrepresentation requires a showing that:
(1) the defendant made a false statement or omission
of a fact,
(2) the statement was in violation of a duty to
exercise reasonable care,
(3) the false statement or omission involved a
material issue, (4) the plaintiff reasonably relied and to [its]
detriment relied on the false information, and
(5) the defendant's challenged conduct proximately
caused injury to the plaintiff.
In re U.S. Office Prods. Co. Sec. Litig., 251 F. Supp.2d 58,
74 (D.D.C. 2003) (citing Redmond v. State Farm Ins. Co.,
728 A.2d 1202
, 1207 (D.C. 1999)).
The defendant in the instant case challenges as inadequate the
plaintiff's assertions of the duty and reliance elements. Because
the plaintiff adequately pled a duty owed by C.J. Thomas and
reasonable reliance on C.J. Thomas' alleged misrepresentations,
the court concludes that the plaintiff adequately asserted the
essential elements of the negligent misrepresentation claim.
Accordingly, the court denies the defendant's motion to dismiss.
C. The Plaintiff Adequately Pleads a Duty Owed By C.J. Thomas
First, the defendant asserts that the plaintiff did not
adequately plead a duty of care owed by C.J. Thomas to
Burlington. Id. at 6. The defendant alleges that there is
generally no duty of care owed by parties to an arm's-length
commercial transaction and, more specifically, there is no duty
owed by an insured party's broker to the insurer. Id. at 6-7.
"One who assumes to act . . . may thereby become subject to the
duty of acting carefully." Sec. Nat'l Bank v. Lish,
311 A.2d 833, 834 (D.C. 1973) (quoting Glanzer v. Shepard, 233 N.Y. 236
(1922)). The law of the District of Columbia, which is the
applicable law in this diversity case, is drawn from the
Restatement (Second) of Torts section 552. Id. at 835;
Remeikis v. Boss & Phelps, Inc., 419 A.2d 986, 990-91 (D.C.
1980). The Restatement, in pertinent part, reads:
(1) One who, in the course of his business,
profession or employment, or in any other transaction
in which he has a pecuniary interest, supplies false
information for the guidance of others in their
business transactions, is subject to liability for pecuniary loss caused to them by their justifiable
reliance upon the information, if he fails to
exercise reasonable care or competence in obtaining
or communicating the information. (2)  the
liability stated in Subsection (1) is limited to loss
(a) by the person . . . for whose benefit and
guidance he intends to supply the information or
knows that the recipient intends to supply it; and
(b) through reliance upon it in a transaction that he
intends the information to influence or knows that
the recipient so intends .
Restatement (Second) of Torts § 552 (1977). Section 552
establishes a duty of care owed by commercial suppliers of
information, such as C.J. Thomas, to those who are intended to
receive the information, even if the recipient is a third party,
like Burlington, that has no privity with the supplier. See id.
The court notes that C.J. Thomas cites cases showing that
Illinois and New York do not follow Section 552 with regard to
the insurer/broker relationship. Def.'s Mot. at 6-7 (citing
Geneva Assurance Syndicate, Inc. v. Med. Emergency Servs.
Assocs., No 92-C-1652, 1998 LEXIS 7426, at **5-7 (N.D. Ill, May
14, 1998); St. Paul Fire & Marine Ins. Co. v. Heath Fielding
Ins. Broking Ltd., 976 F. Supp. 198, 204 (S.D.N.Y. 1996);
Dorfmann Org. v. Greater N.Y. Mut. Ins. Co., 719 N.Y.S.2d 573
(N.Y. App. Div. 2001)). The fact that other jurisdictions follow
different law on the subject, however, does not persuade the
court to ignore D.C. law. A.I. Trade, 62 F.3d at 1458.
Accordingly, the court rules that under D.C. law, the plaintiff
has adequately pled a duty of reasonable care. Remeikis, 419
A.2d at 990-991; Lish, 311 A.2d at 834.
D. The Plaintiff Adequately Pleads Reasonable Reliance
Next, the defendant asserts that the plaintiff did not
adequately plead that its reliance on the defendant's statements was reasonable, because the complaint
did not include a statement that the reliance was objectively
reasonable. Id. at 8-9.
The defendant relies on several cases to conclude that the
plaintiff's reliance could not have been objectively reasonable.
Def.'s Mot. at 8-9 (citing U.S. Office Products, Alicke v. MCI
Comm. Corp. and Hercules & Co. v. Shama Rest. Corp.). In each
case, D.C. law barred a plaintiff's negligent misrepresentation
or fraud claim on the grounds that the plaintiff did not plead
objectively reasonable reliance. U.S. Office Prods.,
251 F. Supp.2d at 74-75 (noting that when the parties have a commercial
relationship, the plaintiff alleging negligent misrepresentation
must plead not only reasonable reliance, but objectively
reasonable reliance); accord Alicke v. MCI Communications
Corp., 111 F.3d 909, 912 (D.C. Cir. 1997); Hercules & Co. v.
Shama Rest. Corp., 613 A.2d 916, 934 (D.C. 1992). The D.C. Court
of Appeals stated in Hercules, and was quoted in U.S. Office
Products and Alicke, that "[o]ne cannot close his eyes and
blindly rely upon the assurances of another absent some fiduciary
relationship or emergency," Hercules, 613 A.2d at 934 (quoting
Mgmt. Assistance, Inc. v. Computer Dimensions, Inc.,
546 F. Supp. 666, 672 (N.D. Ga 1982)). But these cases are
distinguishable on their facts.
In both Hercules and U.S. Office Products, the court held
that the reliance by the plaintiffs was unreasonable because the
misrepresentations in question were oral statements that
contradicted written contracts between the parties. Hercules,
623 A.2d at 934; U.S. Office Prods., 251 F. Supp.2d at 75.
These cases deal primarily with the effect of integration clauses
and the exclusion of parol evidence in contracts. The Alicke
court held that the plaintiff could not have reasonably relied on
the alleged misrepresentations by the defendant because no reasonable person would believe them. 111 F.3d at 912. In all
three cases, the court decided that the plaintiff should have
known that the defendant's representations were untrue or
unenforceable. The same does not hold for Burlington.
Courts generally recognize an insurer's right to rely on
statements made in an insurance application the insurer need
not conduct an independent investigation unless it has reason to
doubt the statements. See e.g., Garcia v. Aetna Cas. & Sur.
Co., 657 F.2d 652, 655 (5th Cir. 1981); Apolskis v. Concord
Life Ins. Co., 445 F.2d 31, 36 (7th Cir. 1971); In re EPIC
Mortgage Ins. Litig., 701 F. Supp. 1192, 1245 (E.D. Va 1988);
Couch on Insurance (Third) § 82.17 (2003). An insurer's reliance
on statements made in an insurance application is generally
recognized as objectively reasonable and is not "blind reliance."
Id. This rule of insurance law focuses on the statements made
in insurance applications, not on the party that made them. It is
irrelevant that the instant case deals with statements made by a
broker, rather than by the insured party itself. Accordingly,
Burlington adequately pled reasonable reliance in its complaint.
Finally, the court is unpersuaded by the defendant's assertion
that the complaint included neither an express statement that the
plaintiff's reliance was objectively reasonable nor a statement
that a reasonable insurer could rely on statements in an
insurance application. It is not necessary for the plaintiff to
plead all elements of his prima facie case in the complaint,
Swierkiewicz, 534 U.S. at 511-14. The complaint need only set
forth a short and plain statement of the claim, giving the
defendant fair notice of the claim and the grounds upon which it
rests. Kingman Park, 348 F.3d at 1040. Burlington has done so
here. Accordingly, the court denies the C.J. Thomas' motion to
dismiss. Id. IV. CONCLUSION
For the above reasons, the court denies the defendant's motion
to dismiss. An order directing the parties in a fashion
consistent with the Memorandum Opinion is separately and
contemporaneously issued this 2nd day of August, 2004.
© 1992-2004 VersusLaw Inc.