Am. Constr. Benefits Grp., LLC v. Zurich Am. Ins. Co., Civil Action No. 3:12-CV-2726-D

• Decision Date: 15 January 2014
• Docket Number: Civil Action No. 3:12-CV-2726-D
• Parties: AMERICAN CONSTRUCTION BENEFITS GROUP, LLC, Plaintiff, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Texas

AMERICAN CONSTRUCTION BENEFITS GROUP, LLC, Plaintiff, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant.

Civil Action No. 3:12-CV-2726-D

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

January 15, 2014

MEMORANDUM OPINIONAND ORDER

In this action by plaintiff American Construction Benefits Group, LLC ("ACBG") against defendant Zurich American Insurance Company ("Zurich") to recover under a claims-made policy and on related extracontractual claims under the Texas Insurance Code, Zurich moves to dismiss under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction and under Rule 12(b)(6) for failure to state a claim on which relief can be granted. For the reasons explained, the court grants Zurich's motions and grants ACBG leave to replead.

I

Because the background facts are set out in a prior memorandum opinion and order, see American Construction Benefits Group, LLC v. Zurich American Insurance Co., 2013 WL 1797942, at *1 (N.D. Tex. Apr. 29, 2013) (Fitzwater, C.J.) ("ACBG I"), the court will recount only the background facts and procedural history necessary to understand the present decision.

Zurich insured ACBG under a claims-made policy (the "Policy") that covered losses incurred by ACBG because of claims made against it for wrongful acts committed by directors, officers, or employees.¹ The insurance claim at issue relates to a loss that ACBG alleges it incurred because of wrongful acts by its President, Steven J. Heussner ("Heussner").

ACBG provided reinsurance to its member company, J.D. Abrams, L.P. ("Abrams"). ACBG obtained this reinsurance from Presidio Excess Insurance Services, Inc. ("Presidio"). During ACBG's policy-renewal negotiations with Presidio, Heussner accepted a coverage exclusion for the cost of a heart transplant operation incurred in the treatment of the child of an Abrams employee. Presidio in turn declined to provide reinsurance coverage for the transplant claim. ACBG alleges that Heussner's actions relating to the coverage exclusion, which resulted in ACBG's paying the costs of the heart transplant, constitute a "wrongful act" that is covered under the Policy.

In August 2011 ACBG filed a claim with Zurich for approximately $1.2 million, the amount of a loss incurred in paying the transplant claim. Within a few days, Zurich acknowledged receipt of the claim. Since that time, Zurich has allegedly stalled claimsnegotiations with ACBG and has not notified ACBG of its coverage decision. Although ACBG's members have not initiated a derivative suit, ACBG posits in response to Zurich's motion to dismiss that they will soon file a derivative action against ACBG's directors.

ACBG now seeks a declaratory judgment that Zurich is obligated under the Policy to defend and indemnify ACBG in the forthcoming derivative suit by ACBG's members. ACBG also alleges that Zurich is liable for violating Tex. Ins. Code Ann. § 541.060(a).

II

Standing is an issue of subject matter jurisdiction and can be contested by a Rule 12(b)(1) motion to dismiss. See Hunter v. Branch Banking & Trust Co., 2013 WL 607151, at *1 (N.D. Tex. Feb. 19, 2013) (Fitzwater, C.J.) (quoting Cobb v. Cent. States, 461 F.3d 632, 635 (5th Cir. 2006)). A Rule 12(b)(1) motion can mount either a facial or factual challenge. See id. at *2 (citing Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. May 1981)). When a party makes a Rule 12(b)(1) motion without including evidence, the challenge to subject matter jurisdiction is facial. Id. The court assesses a facial challenge as it does a Rule 12(b)(6) motion in that it "looks only at the sufficiency of the allegations in the pleading and assumes them to be true. If the allegations are sufficient to allege jurisdiction, the court must deny the motion." Id. at *2 (citation omitted) (citing Paterson, 644 F.2d at 523).

To survive a motion to dismiss under Rule 12(b)(6), plaintiffs must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (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 forthe misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 556); see also Twombly, 550 U.S. at 555 ("Factual allegations must be enough to raise a right to relief above the speculative level[.]"). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not 'shown'—'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (alteration omitted) (quoting Rule 8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Although "the pleading standard Rule 8 announces does not require 'detailed factual allegations,'" it demands more than "'labels and conclusions.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). And "'a formulaic recitation of the elements of a cause of action will not do.'" Id. (quoting Twombly, 550 U.S. at 555).

III

The court first considers whether ACBG has standing under Article III to seek a declaratory judgment regarding Zurich's duty to defend and indemnify ACBG in an allegedly imminent, but still-unfiled derivative suit by ACBG's members.

A

Under the federal Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202, a federal court has the competence, but not the duty, to declare rights. Pub. Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962) (collecting cases). "Declaratory judgments are typicallysought before a completed 'injury-in-fact' has occurred but still must be limited to the resolution of an 'actual controversy.'" United Transp. Union v. Foster, 205 F.3d 851, 857 (5th Cir. 2000) (citation omitted). The ripeness doctrine, which is based on the actual controversy requirement, is designed to "prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements." Choice Inc. of Tex. v. Greenstein, 691 F.3d 710, 715 (5th Cir. 2012) (quoting Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967)). In determining whether a case is ripe, "[t]he key considerations are the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration." Id. (quoting New Orleans Pub. Serv., Inc. v. Council of New Orleans, 833 F.2d 583, 586 (5th Cir.1987)).

B

ACBG seeks a declaratory judgment that Zurich has a duty to defend and indemnify ACBG in a still-unfiled derivative suit to be initiated by ACBG's members. Zurich contends that ACBG's declaratory judgment claim is not ripe because, under Texas law,² Zurich's alleged duties to defend and indemnify depend on the existence of an action by third-parties. The court agrees with Zurich that ACBG's request for declaratory relief concerning Zurich's alleged duty to defend is not ripe for review.

Texas follows the eight-corners rule to determine whether an insurer owes a duty to defend. See, e.g., Colony Ins. Co. v. Price, 2013 WL 1155422, at *2 (N.D. Tex. Mar. 21, 2013) (Fitzwater, C.J.); GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006).

Under the eight-corners rule, two documents determine an insurer's duty to defend—the insurance policy and the third-party plaintiff's pleadings in the underlying litigation. If the underlying pleadings allege facts that may fall within the scope of coverage, the insurer has a duty to defend; if the pleading only alleges facts excluded by the policy, there is no duty to defend.

ACE Am. Ins. Co. v. Freeport Welding & Fabricating, Inc., 699 F.3d 832, 840 (5th Cir. 2012) (citation, alterations, and internal quotation marks omitted). "Because the only two documents relevant to the duty-to-defend inquiry are the insurance policy and the petition, an insurer's duty to defend can be determined at the moment the petition is filed." Id. (emphasis added). Accordingly, the court must decide whether it can determine Zurich's duty to defend before the members' derivative action has been filed. The court holds that it cannot because, without an underlying lawsuit, there is no third-party pleading on which the court can predicate its judgment.

Texas cases addressing the insurer's duty to defend assume that a third-party lawsuit exists and is a part of the record. See, e.g., Ooida Risk Retention Grp., Inc. v. Williams, 579 F.3d 469, 476 (5th Cir. 2009) (holding that even if exception to the eight-corners rule existed, exception would apply only when "the pleadings do not contain the facts necessary to resolve the question"); GuideOne, 197 S.W.3d at 308 ("[A]n insurer's duty to defend is determinedby the third-party plaintiff's pleadings, considered in light of the policy provisions[.]"). This makes sense because, if the record does not contain the third-party pleading, the court lacks one of the two necessary components for applying the eight-corners rule (i.e., at least four of the eight corners). Because the members have not yet filed the underlying derivative action, the court cannot apply the eight-corners rule to decide whether Zurich has a duty to defend ACBG.

The court also agrees with Zurich that ACBG's claim that Zurich has a duty to indemnify ACBG is not ripe. Generally, "[a] suit for indemnity does not arise until some liability is established and made fixed and certain. This does not occur until judgment is rendered or until the lawsuit is settled." In re State Line Fireworks, Inc., 387 S.W.3d 27, 32 (Tex. App. 2012, no pet.) (quoting Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 208 (Tex. 1999)) (citation and internal quotation marks omitted). Once liability has been...