Defending Institutional Bad Faith Claims, Part II – Focusing on Plausibility
In Part I of this series, we discussed institutional bad faith and best practices for insurers to minimize the risk of these costly and intrusive lawsuits. In Part II, we will focus on cutting discovery off at the pleadings—by narrowing the plaintiff’s claim, you limit the scope of relevance in discovery. Under Federal Rule of Civil Procedure 26(b), “[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case….”
Plaintiffs often allege institutional bad faith by providing a small amount of information pertaining to the company at large, and then making significant inferences and conclusions and offering those inferences as factual allegations. A skilled attorney can make such logical leaps appear valid. To avoid general business practices discovery, the battle begins with the initial pleadings. If the complaint does not allege institutional bad faith, then it will be much easier to argue that such discovery is not relevant. If, on the other hand, the complaint alleges institutional bad faith, limiting discovery will become more difficult and more dependent on the specific circumstances of the lawsuit and the discovery requests.
Since the United States Supreme Court’s rulings in Twombly and Iqbal, Federal courts are taking a closer look at bad faith allegations. For example, in a case out of Florida, the court dismissed a claim for punitive damages that contained only “[c]onclusory assertions about business practices and profit motives ….” In Moss v. Liberty Mut. Fire Ins. Co., the plaintiffs alleged the insurer defendant hired a consultant to develop programs to increase the company’s profits and to motivate adjusters to pay claims unfairly and make “low ball” offers, and that this program led to an increase in profits. But, the plaintiffs “fail[ed] to provide any factual underpinnings which make the leap from alleged bad faith delay in processing Plaintiffs’ insurance claim to a general business practice of acting with bad faith toward other unnamed insureds.” The lesson learned from Moss is that you have to scrutinize even detailed, well-researched complaints. Inferences are not facts and do not raise a claim to the level of facially plausible.
Similarly, vague allegations of bad faith based upon a plaintiff’s “information and belief” do not rise to the level of “plausible.” If the plaintiff knew of specific facts that would support its assertions of institutional bad faith, the plaintiff would allege those facts. Some plaintiffs may attempt to skirt the pleading requirements of Rule 8(a) by arguing that “information regarding a company’s general business practices is peculiarly within the possession and control of the [company], such that they may plead facts on the basis of information and belief.” “However, they still must plead enough facts to permit for the reasonable inference that the unfair insurance practice occurred with enough frequency for it to be deemed a ‘general business practice.’” In Kim v. State Farm Fire & Cas. Co., the plaintiffs alleged “it is the general business practice of State Farm to wrongfully deny coverage by relying upon inapplicable policy exclusions.” The court rejected the plaintiffs’ argument that “the issue of the frequency with which the defendants engaged in the insurance practices complained of is a more appropriate area for discovery than pleading and that conclusory allegations of [a] ‘general business practice’ suffice for purposes of permitting discovery.” Accordingly, the court held that the plaintiffs’ bare allegations fail to state a claim.
By challenging unsupported allegations, you take away the plaintiff’s argument that broad general business practices discovery is relevant to its claims. To that end, plausible claims of “general” business practices based on “other claims” require allegations of specific facts relating to the insurer’s conduct in regard to policyholders other than the plaintiff.
 See All Moving Servs., Inc. v. Stonington, Ins. Co., No. 11-61003-CIV, 2012 WL 718786, at *5 (S.D. Fla. Mar. 5, 2012) (holding that if the general business practices allegations are deemed legally sufficient, or are not challenged, the plaintiff may pursue discovery relevant to its claim for punitive damages).
 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009).
 Moss v. Liberty Mut. Fire Ins. Co., No. 3:16-cv-677-J-39JBT, at *5 (M.D. Fla. Aug. 18, 2017).
 Id. at *6.
 316, Inc. v. Md. Cas. Co., 625 F. Supp. 2d 1179, 1184 (N.D. Fla. 2008); accord Alqamus v. Pac. Specialty Ins. Co., No. 3:14-cv-00550, 2015 WL 5722722, at *3 (D. Conn. Sept. 29, 2015).
 See El Doral Office Condo. Ass’n v. Scottsdale Ins. Co., No. 19-20418, 2019 WL 1979361, at *2 (S.D. Fla. May 3, 2019) (“The inclusion of the term ‘to the extent’ within the pleading undermines any claim that the affirmative defense can be supported by facts known to Scottsdale at this moment. If such facts were known, they would almost certainly have been included.”).
 Kim v. State Farm Fire & Cas. Co., No. 3:15-cv-879, 2015 WL 6675532, at *5 (D. Conn. Oct. 30, 2015) (quotation marks omitted).
 Id. (quotation marks omitted).
 Id. at *4.
 Id. at *5 (quotation marks omitted).
 Niagara Distribs., Inc. v. N. Ins. Co. of N.Y., No. 10-61113, 2010 WL 11441045, at *3 (S.D. Fla. Oct. 22, 2010).