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Church Mutual Insurance Co. v. Coutu

United States District Court, D. Colorado

September 13, 2017

CHURCH MUTUAL INSURANCE COMPANY, a Wisconsin corporation, Plaintiff,
PHILLIP MARSHALL COUTU, an individual, POWER ADJUSTERS, INC., a Colorado corporation, JUDAH LEON BENSUSAN, an individual, and ATLANTIS CLAIMS SERVICES, LLC, a Florida limited liability company, Defendants.


          Nina Y. Wang United States Magistrate Judge.

         This matter is before the court on the Joint Motion To Dismiss (“Motion to Dismiss” or “Motion”) filed by Defendants Phillip Marshall Coutu (“Mr. Coutu”), Power Adjusters, Inc. (“Power Adjusters”), Judah Leon Bensusan (“Mr. Bensusan”), and Atlantis Claims Services, LLC's (“Atlantis”) (collectively, “Defendants”). [#65, [1] filed June 5, 2017]. The undersigned considers the Motion pursuant to 28 U.S.C. § 636(b), the Order Referring Case dated March 30, 2017 [#33], and the memorandum dated June 5, 2017 [#66]. Upon careful review of the Motion and associated briefing, the entire case file, applicable law, and the comments offered at the September 7, 2017 Motion Hearing, this court respectfully RECOMMENDS that the Motion to Dismiss be GRANTED IN PART and DENIED IN PART for the reasons stated herein.


         The following facts are drawn from the First Amended Complaint & Jury Demand (“FAC”) [#49], and are presumed to be true for the purposes of the instant Motion. Plaintiff Church Mutual Insurance Company (“Plaintiff” or “Church Mutual”) is a Wisconsin corporation with its principal place of business in Merill, Wisconsin, and is licensed to issue property and casualty insurance to individuals and companies located in Colorado. [#49 at ¶ 1]. Mr. Coutu is a resident of Florida who holds a non-resident public adjuster license in Colorado, and allegedly owned, operated, controlled, or was otherwise employed by or involved with Power Adjusters, a Colorado corporation. [Id. at ¶¶ 2-3, 5]. Mr. Bensusan, a resident of Colorado, once held a Colorado resident public adjuster's license in Colorado, and allegedly owned, operated, controlled, or was otherwise employed by or involved with Atlantis Claims, a Florida limited liability company. [Id. at ¶¶ 4, 6-8]. Both Power Adjusters and Atlantis Claims provide services to “policyholders in connection with disputes with insurance companies.” [Id. at ¶¶ 5, 8].

         As relevant here, Church Mutual issued Policy No. 0226224-02-92707 (the “Policy”) to Montview Boulevard Presbyterian Church (“Montview”) for a period of July 27, 2009, through July 27, 2012. [Id. at ¶¶ 14-15]. On May 5, 2012, Montview submitted Claim No. 1186476 (the “claim”) to Church Mutual for benefits owed under the Policy to recover roof repair costs incurred following a wind and hailstorm. [Id. at ¶ 16]. On or about September 11, 2012, Plaintiff remitted $41, 183.44 to Montview under the claim-Plaintiff then remitted an additional $48, 397.92 under the claim to Montview on or about February 12, 2013. [Id. at ¶¶ 17-18].

         While Plaintiff continued to adjust the claim, Montview hired Mr. Coutu and Power Adjusters as its public adjuster to represent it in the adjustment of the claim on October 10, 2012. [Id. at ¶ 19]. Mr. Coutu allegedly entered into a “consulting” agreement with Integrity Roofing, Montview's roofing contractor, at this same time but did not disclose the existence of this agreement with Plaintiff. [#49 at ¶ 19]. At some point, Plaintiff proposed that an independent adjuster visit Montview's property to conduct a re-inspection in the presence of a contractor and engineer to assess the alleged damage; however, Mr. Coutu allegedly refused to participate and instead sought to have a personal meeting with the independent adjuster. [Id. at ¶ 21].

         Mr. Coutu then indicated that he would go directly to the appraisal process, despite Plaintiff's ongoing adjustment of the claim, and, in accordance with Mr. Coutu's urging, Montview issued a written demand, via email, for appraisal (the “Appraisal Demand”) on or about January 23, 2013. [Id. at ¶¶ 21-22, 24]. The Appraisal Demand named Mr. Bensusan of Atlantis Claims as the purported impartial appraiser under the Policy's appraisal clause. See [id. at ¶¶ 23-24]. On January 31, 2013, Plaintiff acknowledged and accepted the Appraisal Demand and nominated William McConnell, P.E. as its appraiser. [Id. at ¶ 25]. Mr. McConnell also agreed to Mr. Bensusan's nomination of John Kezer, Esq. of Jones & Keller, P.C. to serve as the umpire. See [id. at ¶ 26].

         On or about September 30, 2013, an appraisal award issued for $268, 168.54 (the “Appraisal Award”). [Id. at ¶ 26]. Then, on or about October 11, 2013, Church Mutual remitted $154, 410.68 to Montview as an actual cash value payment under the claim and the Appraisal Award. [Id. at ¶ 29]. That same day, Montview's facilities manager Bob Cloud, met with Messrs. Coutu and Bensusan as well as Integrity Roofing to discuss the Appraisal Award and to divide the proceeds. [Id. at ¶ 32]. Allegedly, at this meeting, Mr. Cloud first learned that Mr. Bensusan's compensation was a percentage of the Appraisal Award, not an hourly fee. [Id. at ¶¶ 33, 49]. According to Plaintiff, Messrs. Coutu and Bensusan have a de facto partnership amongst themselves, Power Adjusters and Atlantis Claims, and with Mr. Kezer. See [id. at ¶¶ 35-45]. Plaintiff then remitted an additional $14, 176.50 as recoverable depreciation under the claim on November 1, 2013. [Id. at ¶ 30].

         On or about May 1, 2014, Montview filed a complaint against Church Mutual in the District Court for the City and County of Denver, later removed to the District of Colorado, asserting claims for common law bad faith breach of an insurance contract as well as violations of Colo. Rev. Stat. §§ 10-3-1115, -1116 (“statutory bad faith”) related to the claim. [Id. at ¶¶ 46-48]. Church Mutual asserted a counterclaim against Montview, seeking to vacate the Appraisal Award given, inter alia, Mr. Bensusan's undisclosed financial interest in the outcome of the appraisal. [Id. at ¶¶ 50-51]. Ultimately, Church Mutual and Montview settled their case, but Plaintiff alleges that it suffered damages defending against the action-the action Messrs. Coutu and Bensusan urged Montview to file and which both stood to gain from financially. [Id. at ¶¶ 56-58]. Moreover, Plaintiff alleges that Messrs. Coutu and Bensusan actively concealed the nature of their financial and business relationships, despite an independent duty to disclose this information. See [id. at ¶¶ 59-71, 72-88, 92-93]. Further, that these misrepresentations of material facts would have relieved Church Mutual from any payment obligations under the Policy, see [id. at ¶¶ 70-71], and that Messrs. Coutu and Bensusan seek additional compensation by urging policyholders to file suit against Church Mutual for delaying and/or withholding benefits and, in doing so, have committed mail and wire fraud. [Id. at ¶¶ 92-93, 96, 97-104].

         Plaintiff initiated this action by filing its Complaint in this District on January 23, 2017. [#1]. Plaintiff's Complaint alleged two claims against the Defendants: (1) civil conspiracy and (2) fraudulent concealment. [Id.]. Following several extensions of time to answer or otherwise respond to Plaintiff's Complaint, see, e.g., [#20; #25; #29; #38], and prior to the Rule 16(b) Scheduling Conference, the undersigned granted the Parties' request to set a deadline of April 25, 2017, for Plaintiff to file its FAC, and granted Defendants one final extension of May 16, 2017, to answer or otherwise respond to Plaintiff's FAC. See [#46]. Plaintiff filed its FAC on April 25, 2017, and levied several new claims against Defendants. The operative claims in this matter are: (1) civil conspiracy against all Defendants (“Claim I”); (2) fraudulent concealment against all Defendants (“Claim II”); (3) federal civil violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) against all Defendants (“Claim III”); (4) federal civil RICO conspiracy against Messrs. Coutu and Bensusan (“Claim IV”); and (5) state civil violations of the Colorado Organized Crime Control Act (“COCCA”) against Messrs. Coutu and Bensusan (“Claim V”). [#49].

         The undersigned then held a Status Conference on May 10, 2017, setting a Scheduling Conference for June 23, 2017. [#56]. On June 5, 2017, Defendants filed the instant Motion to Dismiss directed at all five claims [#65], as well as a Motion to Stay discovery [#64] that the undersigned denied. See [#103]. Plaintiff then filed a Response [#95], and Defendants filed a Reply.[2] [#110]. On September 7, 2017, the undersigned held a Motion Hearing on the Motion to Dismiss, and took the Motion under advisement. [#115]. Because the Motion is ripe for Recommendation, this court considers the Parties' arguments below.[3]


         Under Rule 12(b)(6) a court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In deciding a motion under Rule 12(b)(6), the court must “accept as true all well-pleaded factual allegations . . . and view these allegations in the light most favorable to the plaintiff.”[4] Casanova v. Ulibarri, 595 F.3d 1120, 1124 (10th Cir. 2010) (quoting Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)). Nevertheless, a plaintiff may not rely on mere labels or conclusions, “and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Rather, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009); see also Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (explaining that plausibility refers “to the scope of the allegations in a complaint, ” and that the allegations must be sufficient to nudge a plaintiff's claim(s) “across the line from conceivable to plausible.”). The ultimate duty of the court is to “determine whether the complaint sufficiently alleges facts supporting all the elements necessary to establish an entitlement to relief under the legal theory proposed.” Forest Guardians v. Forsgren, 478 F.3d 1149, 1160 (10th Cir. 2007).


         I. Fraudulent Concealment - Claim II[5]

         Under Colorado law, [6] to plead a plausible fraudulent concealment claim Church Mutual must allege that: (1) Defendants concealed a material fact that in equity and good conscience should have been disclosed; (2) Defendants knew it was concealing such a fact; (3) Plaintiff was ignorant to the concealed fact; (4) Defendants intended Plaintiff to act upon the concealed fact; and (5) Plaintiff acted on the concealed fact to its detriment. See Wood v. Houghton Mifflin Harcourt Publ'g. Co., 589 F.Supp.2d 1230, 1254 (D. Colo. 2008) (applying Colorado law); Baker v. Wood, Ris & Hames, Prof'l Corp., 364 P.3d 872, 883 (Colo. 2016). The indispensible component of a fraudulent inducement claim is that the tortfeasor owed the plaintiff a duty to disclose material information yet neglected that duty. See Mallon Oil Co. v. Bowen/Edwards Assocs., Inc., 965 P.2d 105, 111 (Colo. 1998) (“A defendant has a duty to disclose to a plaintiff with whom he or she deals material facts that in equity or good conscience should be disclosed.” (internal quotation marks and citation omitted)). “The question of whether a duty exists is a question of law.” Level 3 Commc'ns, LLC v. Liebert Corp., 535 F.3d 1146, 1163 (10th Cir. 2008) (internal quotation marks and citation omitted).

         The issue here is whether Defendants owed Plaintiff such a duty under the circumstances of this case-a question that appears unanswered in Colorado and in this District. See Etherton v. Owners Ins. Co., 829 F.3d 1209, 1223 (10th Cir. 2016) (noting that when jurisdiction is based on the parties' diversity, the federal court must predict how the state's highest court would rule on a question of substantive law if the state's highest court has yet to do so). The Parties offer diametrically opposed views on this point: Plaintiff argues that a duty unequivocally exists under Colorado common law, wholly apart from the insurance contract entered between Church Mutual and Montview, whereas Defendants contend that there is no such duty and that this fact is fatal to the entire FAC. Compare [#65; #110] with [#95]. Additionally, Defendants aver that, even if they owed Plaintiff such a duty, Colorado's economic loss rule bars Claim II because the allegedly breached duty arose from the Policy. See [#65 at 14-18, 21; #110 at 15-17].

         A. Agency

         Before addressing these arguments, this court first addresses an issue interwoven, and at times conflated, throughout the Parties' positions. Throughout their Motion to Dismiss, Defendants argue that, because they are Montview's agents, their alleged unsatisfactory performance under the Policy (i.e., their partiality) insulates them from Plaintiff's fraudulent concealment claim. See [#65 at 11-14, 20-21]. Rather, Plaintiff's sole remedy was to deny Montview's appraisal award based on this alleged misconduct. See generally [id.]. Plaintiff responds that Defendants breached a duty to disclose owed to Plaintiff, because Defendants, even as Montview's agents, are liable for their own tortious conduct. [#95 at 23-27]. Plaintiff also contends that without such an independent duty, their only recourse would be to penalize the innocent insured. [Id. at 14]. Defendants generally agree with this proposition, but argue that these conclusions do not create an independent duty to disclose material facts to Plaintiff. [#110 at 13-14]. At oral argument, Defendants continued to insist that as agents of a party to an insurance contract, they cannot be independently liable for breach of contract. See, e.g., [#119 at 6:4-10, 6:23-7:13]. This court finds Defendants' arguments misplaced.

         As an initial matter, as recognized by Plaintiff, there is a distinction between the role of a public adjuster and an appraiser-a distinction that this court finds to be important to discuss even if it is not dispositive of the issues before it. A public adjuster is an adjuster employed by an insured to assist the insured in making a claim to its insurer. See Colo. Rev. Stat. § 10-2-103(8.5); Colorado Hosp. Servs. Inc. v. Owners Ins. Co., No. 14-CV-001859-RBJ, 2015 WL 4245821, at *2 (D. Colo. July 14, 2015). Therefore, a public adjuster is considered an agent of the insured. See Republic Ins. Co. v. Jernigan, 753 P.2d 229, 231 (Colo. 1988) (describing a public adjuster as an agent of the insured). But it is not clear that an appraiser selected under the Policy is an agent of the insured. “Agency ‘is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.'” Mullin v. Hyatt Residential Grp., Inc., 82 F.Supp.3d 1248, 1258 (D. Colo. 2015) (quoting Stortroen v. Beneficial Fin. Co. of Colorado, 736 P.2d 391, 395 (Colo. 1987)). Defendants cite no authority, and this court could find none, that an appraiser, who is required to be “impartial” under the Policy, would be appropriately considered an agent of the insured. Cf. Norwich Union Fire Ins. Soc., Ltd., of Norwich, England v. Cohn, 68 F.2d 42, 44 (10th Cir. 1933) (“But while appraisers are appointed by the parties, they are not subject to the control of the parties. They are not agents in law and ought not to be in practice. If appraisers were subject to the direction of the parties, the whole proceeding would be a useless ceremony . . . .” (internal citations omitted)).

         Even assuming an appraiser could be appropriately considered an agent of the insured, Defendants may still be liable for their tortious actions independently. It is well-settled that “[a] principal may be bound by an agent's actions if the agent acts pursuant to either actual or apparent authority, regardless of whether the principal has knowledge of the agent's conduct.” Citywide Banks v. Armijo, 313 P.3d 647, 652 (Colo.App. 2011). “However, an agent may be held personally liable for torts committed by him including his own misrepresentations, even though the tortious acts were done on behalf of his principal.” Galie v. RAM Assocs. Mgmt. Servs., Inc., 757 P.2d 176, 177 (Colo.App. 1988); accord Restatement (Third) of Agency § 7.01 (“An agent is subject to liability to a third party harmed by the agent's tortious conduct.”). While Defendants may not be liable for any breach by Montview of the Policy, Defendants can be liable for their own tortious conduct, even for acts conducted as Montview's agents. This court understands Plaintiff to be arguing that Defendants owed it a duty to disclose certain material facts outside of any contractual duty imposed by the Policy that Montview to select an independent and impartial appraiser.

         This court now turns to the more difficult question of whether an extra-contractual duty to disclose particular financial information ran from Defendants to Plaintiff under the circumstances.

         B. Duty

         Church Mutual asserts that Defendants owed it a duty to disclose their financial and business relationships, Mr. Bensusan's financial interest in the Appraisal Award, and their financial interest in any damages awarded to Montview in the underlying litigation between Plaintiff and Montview. See, e.g., [#49 at ¶¶ 59-67, 72, 111a.-j.]. Plaintiff asserts that this duty to disclose emanates from the common law, the Policy, Colorado statutes, and Colorado regulations. [Id. at ¶¶ 72-88]. Defendants move to dismiss Claim II on the basis that they owed Plaintiff no duty to disclose this information under the common law, the Policy, Colorado's statutes and regulations, or otherwise. See [#65 at 11-14, 18-23; #110 at 5-15]. For the following reasons, this court respectfully concludes that Defendants' owed Plaintiff a duty to disclose their financial and business relationships under the particular circumstances of this case.[7]

         1. Common Law Duty

         a. Nature of the Relationship

         The court first considers Defendants' argument that there is no, and can be no, common law duty that runs between Defendants[8] and the insurance company because of the nature of the relationship. In making these arguments, Defendants primarily rely on two cases that this court finds non-dispositive under these circumstances.

         First, in Building On Our Best LLC v. Sentinel Insurance Company Limited, the court did not directly consider whether a public adjuster or appraiser owed any duty to an insurance company. Instead, the court dismissed the plaintiffs' Colorado Consumer Protection Act (“CCPA”) claim against the engineering company hired by the insurer's adjuster, because the plaintiffs (as insureds) could not establish that the engineering company's conduct had a public impact on its customers (i.e., the insurance company), and did not allege a factual basis to demonstrate that the engineering company's “phony engineering reports” amounted to anything more than a bias in favor of insurers, which does not constitute an unfair and deceptive trade practice under the CCPA. No. 15-cv-00669-RBJ, 2015 WL 7014445, at *4-5 (D. Colo. Nov. 12, 2015). In reaching this conclusion, the Building On Our Best court observed that bias on the part of the engineering company toward the insurer did not constitute an unfair or deceptive trade practice, “any more than an insured's retention of a ‘public adjuster' known to be favorable to the insured would necessarily establish actionable wrongdoing on the public adjuster's part.” Id. at *4.

         Defendants urge this court to construe the Building On Our Best court's ruling as one that establishes that a public adjuster or appraiser has no duty to a third party, but such a conclusion is not warranted. As an initial matter, the court's observation is just that-an observation-and not a legal holding that a public adjuster owes no duty to anyone other than his client under all circumstances. Instead, the Building On Our Best decision is more applicable to Mr. Bensusan's as an appraiser selected by the public adjuster, but still not dispositive. The court in Building On Our Best, and in other cases, observed that repeated engagement of an expert alone is not a basis to conclude that the expert is impermissibly biased. See Id. at *5; Colorado Hosp. Servs. Inc., 2015 WL 4245821, at *2. But Plaintiff's allegations in this matter exceed an assertion of mere bias. Rather, Plaintiff alleges that Defendants had an independent duty to disclose their financial and business interests in the outcome of the particular Appraisal Award and the underlying Montview litigation, and that Defendants' failure to do so caused it the specific injuries of paying “more than it otherwise would have paid had the appraisal award not involved an undisclosed conflicted appraiser (Bensusan). . . . [and] significant attorneys' fees defending the Underlying Action and bringing counterclaims in the Underlying Action, which it would not have had to do had the Defendants not engaged in their fraudulent conspiracy.” [#49 at ¶ 58]. Thus, Plaintiff avers that Defendants withheld information regarding a direct pecuniary interest to Plaintiff's detriment.

         In further contrast to Building On Our Best, where the court found that the Amended Complaint set forth no factual allegations to support the plaintiffs' belief that the engineering report was “assembled in bad faith, ” reliant upon “inaccurate data and irrelevant sources, and was created for the sole purpose of misleading Plaintiffs to believe that Sentinel's denial was justified, ” see 2015 WL 7014445, at *4-5, the FAC in this action alleges specific facts to support its assertions of material omissions about Mr. Bensusan's motive and incentive to increase the Appraisal Award. For example, Mr. Bensusan's compensation was not hourly but, rather, a percentage of the Appraisal Award [#49 at ¶ 33]; Messrs. “Coutu and Bensusan had an undisclosed agreement whereby Bensusan was compensated, either directly or indirectly, from the proceeds of the appraisal awards in numerous appraisals or litigated bad faith cases where Bensusan had been appointed as appraiser by Coutu (or appointed by the insured at Coutu's suggestion)” [id. at ¶ 35]; from at least January to September 2013, Mr. Bensusan had check writing, deposit, and fund withdrawal authority from Mr. Coutu's company bank account [id. at ¶ 36]; in that same time period, Mr. Bensusan held an equitable interest in Mr. Coutu's company, Power Adjusters [id. at ¶ 37]; also in that same time frame, Power Adjusters paid for Mr. Bensusan's personal residence in the tune of tens of thousands of dollars [id. at ¶ 39]; and that the various actors concealed these facts to create the false impression that Mr. Bensusan was an independent and impartial appraiser, thereby allowing Defendants to improperly inflate the Appraisal Award to Plaintiff's detriment [id. at ¶ 70]. While this court concurs that a particular predisposition toward one side or another in litigation is, in itself, unlikely to be actionable, Plaintiff's allegations, taken as true, plead more than garden-variety bias. Rather, the FAC articulates specific facts to support the conclusion that Defendants had an ongoing financial relationship that incentivized and facilitated an inflated Appraisal Award, and Defendants did, in fact, reap excessive financial gains at Plaintiff's expense. Accordingly, this court finds that Building On Our Best does not support the conclusion that a public adjuster or appraiser can never owe a duty to an insurance company.

         Next, in Meridian Security Insurance Company v. Hoffman Adjustment Company, the Indiana Court of Appeals held that, under Indiana agency law, the insurer-plaintiff could not hold the insureds' public adjuster, as the insureds' agent, liable for alleged fraud and breach of contract. 933 N.E.2d 7, 12-13 (Ind.Ct.App. 2010). Though somewhat factually similar, and despite Defendants' fervent attempt to persuade this court to reach a similar outcome here, Meridian is inapposite. Meridian is based on Indiana principles of agency law that do not hold agents economically liable to anyone but their principals. Id. at 12 (citing Greg Allen Const. Co., Inc. v. Estelle, 798 N.E.2d 171, 174 (Ind. 2003)). But as explained, an agent can be liable to parties other than its principal for its tortious conduct under Colorado law. See Galie, 757 P.2d at 177. Further, the court in Meridian emphasized that Meridian predicated its claims on trying to hold the public adjuster liable for acts that breached the policyholders' insurance policy. As explained in more detail below, if Church Mutual's only allegations were that Defendants breached the Policy's “impartial appraiser” language by having multiple engagements together, then this court would likely conclude that such claims were barred, given Defendants' status as non-parties to the Policy and the conclusion by multiple courts that “[t]he suggestion that retention of an expert on multiple engagements renders the expert other than impartial is a slippery slope.” Colorado Hosp. Servs. Inc., 2015 WL 4245821, at *2 n. 2. Here, however, there is a different dimension-Defendants tortiously withheld material information regarding their pecuniary interests in the Appraisal Award and the underlying Montview litigation that they were required to disclose in addition to any duties arising under the Policy.

         b. Section 551(2) & Colorado ...

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