The Eleventh Circuit Court of Appeals, in M&M Sisters LLC v. Scottsdale Insurance Co., affirmed the district court’s dismissal of an insured’s third amended complaint against its insurance carrier for failure to state a claim for relief without further leave to amend.

The plaintiffs, M&M Sisters LLC and its two owners Bertha Garcia and Maria Mendez, purchased a commercial general liability policy from the defendant, Scottsdale Insurance Co., covering an apartment building located in Miami, Florida. In May 2019, the plaintiffs filed a claim for damage to the building and subsequently demanded an audio/video recording of the inspection, which Scottsdale refused.

In October 2019, the plaintiffs filed a complaint in Florida state court seeking a declaratory judgment that Scottsdale must agree to the audio/video recording of the inspection, that the plaintiffs’ claim was covered under the policy, and that Scottsdale’s delay in inspecting the property and determining coverage constituted a constructive denial of coverage. Scottsdale filed a motion to stay the action pending a determination of coverage, which the court granted.

In January 2021, Scottsdale denied the plaintiffs’ claim based on the determination that the loss was excluded from coverage after its structural engineer attributed the damage to wear and tear in the roof and windows, and to faulty workmanship. In May 2021, the plaintiffs filed an amended complaint against Scottsdale for breach of contract that alleged that the property “sustained a sudden, accidental and/or otherwise covered loss under the Policy, resulting in extensive damage to the interior and exterior of the insured risk” and that Scottsdale had “refuse[d] to perform” its duties “to promptly investigate, adjust and issue payment for the Covered Loss,” which “include[ed], but [was] not limited to, the actual cash value of the loss and/or damages.”

Scottsdale moved to dismiss the plaintiffs’ amended complaint for a more definite statement, which the plaintiffs agreed for the state court to grant without prejudice and provide the plaintiffs 20 days to file a second amended complaint that “allege[d] [their] damage and the cause of [their] alleged loss with greater particularity.” Thereafter, the plaintiffs filed a second amended complaint that alleged the property “suffered a sudden, accidental and/or otherwise covered loss”; “more specifically … extensive roof damage which resulted in ensuing water damage to the interior of” multiple apartment units. The plaintiffs repeated that Scottsdale had “refuse[d] to perform” its duties “to promptly investigate, adjust and issue payment for the Covered Loss,” which “include[ed], but [was] not limited to, the actual cash value of the loss and/or damage” of more than $30,000. Later, the plaintiffs estimated the damages at $2,591,333.16, at which time Scottsdale removed the action to the U.S. District Court for the Southern District of Florida and moved to dismiss the plaintiffs’ second amended complaint.

The district court subsequently dismissed the second amended complaint, finding that the plaintiffs “alleged [no] facts explaining what ‘roof damage’ or ‘ensuing water damage occurred’ … [or] how that ‘covered loss’ caused damage to the roof or interior of the property.” The district court also stated that “merely assert[ing] unidentified damage from an unidentified cause … and that [Scottsdale had] breached the policy by failing to pay the claim,” without providing “facts that, if true, demonstrate [Scottsdale’s] liability” was “insufficient to support a breach-of-contract claim.” The district court’s dismissal of the plaintiffs’ second amended complaint was without prejudice to amend within 14 days.

Instead of adhering to the district court’s observations, the plaintiffs filed a third amended complaint that was virtually identical to its predecessor. The only differences were that the plaintiffs added allegations that Scottsdale denied coverage, that the plaintiffs purchased an “all risks” policy, which they claimed had no applicable exclusions, and that the adverse decision was “improper … [for] fail[ing] to identify an applicable exclusion.” Scottsdale then moved to dismiss the plaintiffs’ third amended complaint and submitted a copy of its denial letter, which the district court granted without leave for the plaintiffs to file a fourth amended complaint. The district court ruled that the complaint still failed to allege specific facts indicating that the damage was covered by the policy, which covered “fortuitous” or unexpected losses. The district court explained that the “sparse allegations” as to the alleged property damage and the event that purportedly caused the damage made it impossible to determine one way or another if the “damage causing event was plausibly fortuitous.” The district court also noted that the plaintiffs had failed to correct the deficiencies that were highlighted in the order dismissing the second amended complaint.

In affirming the district court, the Eleventh Circuit found it did not need to decide whether the plaintiffs had to allege that the loss was “fortuitous” in order to withstand a motion to dismiss. The court found the third amended complaint failed to state a claim for a more fundamental reason: the plaintiffs “alleged no facts from which the district court could plausibly infer that Scottsdale breached its contract by denying [the plaintiffs’] claim.” The court noted that an “all risks” policy is triggered if the insured property suffers a loss while the policy is in effect, “unless the cause of the loss is expressly excluded from coverage.” Although the plaintiffs alleged that the policy was in effect when the property was damaged, the court explained that Scottsdale’s denial letter, which was incorporated into the third amended complaint by reference, “established that the insurer denied coverage based on exclusions in its policy for wear and tear, for deterioration, for faulty or defective repairs, materials, and maintenance, and for interior water damage not connected to a covered loss to the roof or walls of the building.” The court held that the conclusory allegation in the third amended complaint that the “[p]roperty sustained a sudden, accidental and/or otherwise covered loss under the Policy,” failed to allege specific facts from which the district court could have plausibly inferred that the damage was attributable to anything other than the causes identified in Scottsdale’s denial letter. The court then held that the district court did not err by dismissing the third amended complaint, and did not abuse its discretion by failing to sua sponte afford the plaintiffs a fourth opportunity to amend the complaint, as the plaintiffs had already failed to correct the deficiencies when given an opportunity to do so on three separate occasions.