Great Divide Insurance Company v. Bear Mountain Lodge, LLC
3:15-cv-00189
D. AlaskaFeb 24, 2016Background
- On July 7, 2013, a DHC-3 Otter crashed en route to Bear Mountain Lodge; all aboard died and multiple lawsuits followed naming Bear Mountain Lodge, LLC (BML) as a defendant.
- BML was insured under a Great Divide policy; BML’s owners are potential additional insureds.
- BML reported the underlying litigation to Great Divide; Great Divide sent a reservation-of-rights letter and agreed to pay defense costs for claims it reserved on.
- Great Divide then filed a declaratory judgment action seeking a judicial determination of its coverage obligations; BML answered and counterclaimed for bad faith breach of the implied covenant of good faith and fair dealing.
- Great Divide moved to dismiss the bad-faith counterclaim under Fed. R. Civ. P. 12(b)(6); the court evaluated whether BML pleaded sufficient nonconclusory facts to make bad faith plausible.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether filing a declaratory judgment action can constitute insurer bad faith | Filing a declaratory judgment while reserving rights is a reasonable, recognized practice and not per se bad faith | Filing a declaratory action can be bad faith if done for an improper purpose (e.g., to impose financial strain on the insured) | Filing a declaratory judgment is not per se bad faith; it can support bad faith only if plausibly alleged to have been done for an improper financial motive |
| Whether BML pleaded sufficient facts to state a bad-faith claim | Great Divide argued BML’s allegations are conclusory and lack factual enhancement required by Twombly/Iqbal | BML alleged Great Divide is using its economic strength as a weapon by forcing BML to litigate for coverage | Court held BML’s counterclaim is conclusory, lacks factual detail about insurer knowledge or motives, and fails to plead plausibly; dismissal without prejudice |
| Standard for evaluating bad-faith pleading in this context | Invoke federal pleading standards (Twombly/Iqbal) requiring factual content making claim plausible | Emphasize Alaska law recognizing bad faith tort and Lockwood theory (using financial leverage) | Court applied federal plausibility standard and Alaska bad-faith law; plaintiff must plead objective unreasonableness or improper motive with factual support |
| Remedy after deficient pleading | Great Divide sought dismissal with prejudice | BML sought to proceed on its bad-faith counterclaim | Court dismissed counterclaim without prejudice, allowing BML to amend if it can plead facts in good faith |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (plausibility standard for federal pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must contain factual enhancement to be plausible)
- Lockwood v. GEICO Gen. Ins. Co., 323 P.3d 691 (Alaska recognizes bad-faith claim based on insurer using financial leverage to force settlement)
- State Farm Mut. Ins. Co. v. Weiford, 831 P.2d 1264 (Alaska recognizes implied covenant of good faith and fair dealing)
- Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d 1321 (insurer’s actions must be objectively unreasonable for bad-faith claim)
- Allstate Ins. Co. v. Thacher, 520 F. App’x 511 (insurer’s declaratory action may be reasonable when a legitimate coverage dispute exists)