Hayes v. Wis. & S. R.R., LLC

• Court: U.S. District Court — Eastern District of Wisconsin
• Writing for the Court: WILLIAM E. DUFFIN, U.S. Magistrate Judge
• Citation: Hayes v. Wis. & S. R.R., LLC, 514 F.Supp.3d 1055 (E.D. Wis. 2021)
• Decision Date: 20 January 2021
• Docket Number: Case No. 18-CV-923
• Parties: Justin M. HAYES and Amanda E. Hayes, Plaintiffs, v. WISCONSIN & SOUTHERN RAILROAD, LLC, Lloyds, Pieper Electric, Inc., and Zurich American Insurance Company, Defendants. Wisconsin & Southern Railroad, LLC, Third-Party Plaintiff, v. Zurich American Insurance Company and Pieper Electric, Inc., Third-Party Defendant.

514 F.Supp.3d 1055

Justin M. HAYES and Amanda E. Hayes, Plaintiffs,

v.WISCONSIN & SOUTHERN RAILROAD, LLC, Lloyds, Pieper Electric, Inc., and Zurich American Insurance Company, Defendants.

Wisconsin & Southern Railroad, LLC, Third-Party Plaintiff,

v.Zurich American Insurance Company and Pieper Electric, Inc., Third-Party Defendant.

Case No. 18-CV-923

United States District Court, E.D. Wisconsin.

Signed January 20, 2021

William G. Jungbauer, David L. Tomenes, John D. Magnuson, Yaeger & Jungbauer Barristers PLC, St. Paul, MN, for Plaintiff Justin M. Hayes.

David L. Tomenes, John D. Magnuson, Yaeger & Jungbauer Barristers PLC, St. Paul, MN, for Plaintiff Amanda E. Hayes.

Edward W. Stewart, Law Office of Stanley J. Lowe, Scott P. Drawe, Drawe & Maland, Schaumburg, IL, for Third-Party Defendant Pieper Electric Inc.

David M. Alt, David J. Buishas, Joseph P. Pozen, Matthew M. Murphy, BatesCarey LLP, Chicago, IL, Steven M. Anderson, Ruder Ware LLSC, Eau Claire, WI, for Defendant/Third-Party Plaintiff Wisconsin & Southern Railroad LLC.

David M. Alt, David J. Buishas, BatesCarey LLP, Chicago, IL, for Defendant Lloyds.

Edward W. Stewart, Law Office of Stanley J. Lowe, Scott P. Drawe, Drawe & Maland, Schaumburg, IL, for Defendant Pieper Electric Inc.

Edward W. Stewart, Law Office of Stanley J. Lowe, Schaumburg, IL, Paul J. Pytlik, Ratzel Pytlik & Pezze LLC, Brookfield, WI, Philip R. King, Cozen O'Connor, Chicago, IL, for Defendant Zurich American Insurance Company.

DECISION AND ORDER

WILLIAM E. DUFFIN, U.S. Magistrate Judge

1. Background

An employee of Wisconsin & Southern Railroad was electrocuted while working for the railroad. He and his wife sued the railroad, and the railroad tendered the claim to Zurich American Insurance Company, one of the insurers providing coverage for the railroad. Zurich asserted that it had no duty to defend or indemnify the railroad for the claim, and in a decision dated November 12, 2019, the court agreed. (ECF No. 89.)

Under Wisconsin law, if an insurer withdraws its defense after the trial court concludes there is no duty to defend, it still may be liable for bad faith if the court of appeals disagrees with the trial court's decision regarding coverage. Newhouse v. Citizens Sec. Mut. Ins. Co. , 176 Wis. 2d 824, 837, 501 N.W.2d 1, 6 (1993). Thus, to force the railroad to either accept this court's decision or have it definitively resolved on appeal, Zurich asked the court to enter judgment pursuant to Rule 54(b). (ECF No. 97.) However, Zurich's motion was filed 41 days after the court's decision. The Court of Appeals for the Seventh Circuit

[l]ong ago ... added a timeliness requirement as a hedge against dilatory Rule 54(b) motions. Schaefer v. First Nat'l Bank of Lincolnwood , 465 F.2d 234, 236 (7th Cir. 1972). [It] held in Schaefer that ‘as a general rule it is an abuse of discretion for a district judge to grant a motion for a Rule 54(b) order when the motion is filed more than thirty days after the entry of the adjudication to which it relates.’ Id.

Hayes v. Wis. & S. R.R., LLC , No. 18-CV-923, 2020 WL 1955226 at *1, 2020 U.S. Dist. LEXIS 7482 at *3 (E.D. Wis. Apr. 23, 2020) (quoting King v. Newbold , 845 F.3d 866, 868 (7th Cir. 2017) ). Thus, the court denied Zurich's motion as untimely. Id. at *––––, 2020 U.S. Dist. LEXIS 7482 at *4.

The court then denied Zurich's motion for reconsideration, again finding that Zurich failed to excuse its untimeliness because it had not shown that its "dilatoriness [was] not occasioned by neglect or carelessness." Hayes v. Wis. & S. R.R., LLC , No. 18-CV-923, 2020 WL 1955226 at *3, 2020 U.S. Dist. LEXIS 71646 at *7 (E.D. Wis. Apr. 23, 2020) (quoting Schaefer , 465 F.2d at 236 ). At oral argument on the pending motion to dismiss, counsel for Zurich confirmed that he was aware of the 30-day deadline but failed to timely move for the entry of judgment because of delays in obtaining approval from Zurich. Zurich never argued that its delay was the result of excusable neglect.

Zurich has now filed a second amended answer and counterclaim, adding a claim for unjust enrichment and seeking reimbursement for all costs it expended and may continue to expend for the railroad's defense. (ECF No. 110.) There is no allegation that the policy includes a right to reimbursement, and at oral argument the parties confirmed that the policy does not include any such provision. However, Zurich reserved a right to reimbursement in its reservation of rights. (ECF No. 110 at 17, ¶ 15.)

The railroad has moved to dismiss the unjust enrichment counterclaim. (ECF No. 112.) The court has jurisdiction pursuant to 28 U.S.C. § 1331 and 28 U.S.C. § 1367 because the employee's underlying claim arises under the Federal Employers’ Liability Act ("FELA"), U.S.C. § 51, et seq. All parties have consented to the full jurisdiction of this court in accordance with 28 U.S.C. § 636(c).

2. Motion to Dismiss Standard

To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure a complaint must "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim "has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. A claim satisfies this pleading standard when its factual allegations "raise a right to relief above the speculative level." Twombly , 550 U.S. at 555-56, 127 S.Ct. 1955. The court accepts "all well-pleaded facts as true and constru[es] all inferences in favor of the plaintiffs." Gruber v. Creditors’ Prot. Serv. , 742 F.3d 271, 274 (7th Cir. 2014).

3. Analysis

The question presented in the railroad's motion to dismiss is whether, under Wisconsin law, an insurer may pursue a claim for unjust enrichment to recover the costs of defense that it provided under a reservation of rights.

It is this court's obligation to apply the law as it believes the Wisconsin Supreme Court would. Doermer v. Callen , 847 F.3d 522, 527 (7th Cir. 2017). If the Wisconsin Supreme Court has never decided a particular issue, this court considers the decisions of other Wisconsin courts as persuasive authority as to how the Wisconsin Supreme Court would decide the issue. Stevens v. Interactive Fin. Advisors, Inc. , 830 F.3d 735, 741 (7th Cir. 2016). In the absence of any Wisconsin authority on an issue, the court may look to other jurisdictions that have addressed the issue, but always with the aim of predicting how the Wisconsin Supreme Court would decide the issue. Lexington Ins. Co. v. Rugg & Knopp, Inc. , 165 F.3d 1087, 1090 (7th Cir. 1999).

Neither the Wisconsin Supreme Court nor the Wisconsin Court of Appeals have addressed the question presented. The closest the Wisconsin Supreme Court came was in dicta in a case nearly 35 years ago when it said, "we have noted that an insurer may be required to furnish a free defense to its insured prior to the determination of coverage." Mowry v. Badger State Mut. Cas. Co. , 129 Wis. 2d 496, 528-29, 385 N.W.2d 171, 186 (1986). The railroad argues that, by referring to the obligation to provide a "free defense," the court rejected the notion that a purported insured would have to reimburse an insurer for defense costs. After all, something is not free if you have to pay someone back for it.

This reading places undue weight on a two-word phrase in passing dicta. Kreuger Int'l, Inc. v. Fed. Ins. Co. , 647 F. Supp. 2d 1024, 1042 (E.D. Wis. 2009) ("Only by ignoring context can the Wisconsin Supreme Court's reference in Mowry to a ‘free defense’ be taken as that Court's resolution of this important issue."). The issue of reimbursement was not before the court and it would be unreasonable to assume that a flitting phrase resolved this significant and controversial question.

As to states that have addressed the question, permitting insurers to recoup defense costs for uncovered claims is regarded as the majority view.

Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co. , 215 Ill. 2d 146, 166, 293 Ill. Dec. 594, 606, 828 N.E.2d 1092, 1104 (2005). "Courts that recognize such claims for reimbursement of defense costs generally do so under a quasi-contract theory, allowing recovery to prevent unjust enrichment." Gen. Star Indem. Co. v. V.I. Port Auth. , 564 F. Supp. 2d 473, 477 (D. V.I. 2008) (discussing Buss v. Superior Court , 16 Cal. 4th 35, 65 Cal. Rptr. 2d 366, 939 P.2d 766 (1997) ).

But a simple tally of the states on each side of this issue does not accurately reflect the controversy that underlies this question. The issue has even divided the American Law Institute, with the Restatement of the Law of Restitution and Unjust Enrichment favoring reimbursement, see Restatements of the Law 3d, Restitution and Unjust Enrichment, § 35, and the Restatement of the Law of Liability Insurance opposing it, see Restatement of the Law of Liability Insurance, § 21. As for treatises, Appleman favors reimbursement. 1 New Appleman Insurance Bad Faith Litigation § 2.11 (2nd 2020). Couch notes that "[a]n insurer generally seeks reimbursement of defense costs and attorneys’ fees from an insured under circumstances in which the insurer has defended a claim not covered by a policy, or which was only partially covered (a ‘mixed’ action)" but observes that "[j]urisdictions differ widely on this issue." Overview, 16 Couch on Ins. § 226:123.

Outcomes in other cases are often heavily fact dependent, varying based on many factors, including the stage at which the insured sought reimbursement, whether the policy provided coverage for any portion of the claim (i.e. , "mixed" claims), see, e.g. , Buss , 16 Cal. 4th 35, 65 Cal. Rptr. 2d 366, 939 P.2d 766, the scope of the alleged reimbursement (e.g. , whether the insurer was seeking reimbursement for...