Baseline Contracting, Inc. v. Cincinnati Ins.

• Decision Date: 20 August 2015
• Docket Number: CIVIL ACTION NO. 12-2350
• Court: U.S. District Court — Eastern District of Pennsylvania
• Parties: BASELINE CONTRACTING, INC. and SITELINE SERVICES, INC., Plaintiffs v. CINCINNATI INSURANCE, and CINCINNATI INDEMNITY CO., Defendants

BASELINE CONTRACTING, INC. and SITELINE SERVICES, INC., Plaintiffs
v.
CINCINNATI INSURANCE, and CINCINNATI INDEMNITY CO., Defendants

CIVIL ACTION NO. 12-2350

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

August 20, 2015

MEMORANDUM

STENGEL, J.

Plaintiffs, Baseline Contracting, Inc. and Siteline Services, Inc. (collectively "Plaintiffs") filed this action for breach of contract and fiduciary duties against Defendants Cincinnati Insurance and Cincinnati Indemnity Company (collectively "CI"). Plaintiffs allege that CI exercised control of the defense and settlement of workers' compensation insurance ("WCI") claims filed against it by its employees, including control over the retention of defense counsel. Count I of Plaintiffs' Amended Complaint alleges that CI breached its duties when it settled claims in amounts lacking justification and/or a factual basis, without consulting them or considering the effects of such settlements on Plaintiffs' WCI premiums. (Am. Compl. ¶¶ 39-40.) Count II seeks a declaratory judgment that CI's inclusion of fringe benefits in the calculation of Plaintiffs' general liability ("GL") coverage premium bases was contrary to law and public policy. (Id. ¶ 47.) CI has filed a Counterclaim for breach of contract and unjust enrichment, asserting that Plaintiffs have failed to pay premiums due on the various policies issued to

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them totaling $132,484. (Countercl. ¶ 18.) Plaintiffs have answered the Counterclaim, asserting affirmative defenses that CI breached the agreements it seeks to enforce, thereby excusing Plaintiffs' performance. Presently pending are the parties' cross-motions for summary judgment. Each party has filed a Statement of Undisputed Facts and a Response to the opposing party's Statement. For the reasons that follow, I deny Plaintiffs' Motion. CI's Motion is granted in part and denied in part.

I. THE SUMMARY JUDGMENT RECORD

CI asserts that the following facts in support of its cross motion for summary judgment are undisputed. I will note Plaintiffs' objections where appropriate.

1. CI issued WCI Policy No. WC 8999438-06 to Baseline for the period April 1, 2010 to April 1, 2011. (DSOF Ex. 1.)

2. CI issued WCI Policy No. WC 2100834-05 to Siteline for the period April 1, 2010 to April 1, 2011. (DSOF Ex. 2.)

3. CI issued CP Policy No. CPP 0814631 to Baseline and Siteline for the period April 1, 2010 to April 1, 2011. (DSOF Ex. 3.)

4. Baseline commenced a lawsuit against Defendants in the Court of Common Pleas of Lehigh County, Pennsylvania on February 23, 2012.

5. Defendants filed a Notice of Removal on May 1, 2012.

6. Plaintiffs filed an Amended Complaint ("Amended Complaint") on July 23, 2012. In it they allege breach of contract and fiduciary duty (Count I) and request a declaratory judgment under 28 U.S.C. §2201 (Count II). (See Docket Entry 12.)

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7. Defendants filed their Answer, Affirmative Defenses and Counterclaims ("Counterclaim") on August 2, 2012. The Counterclaims allege breach of contract and unjust enrichment for premiums owed and past due in the amount of $132,484. The terms and conditions of the Plaintiffs' Workers' Compensation Policies and Commercial Package Policy include Plaintiffs' agreement to pay premiums. The premiums were to be ultimately calculated based on audits of Plaintiffs' payroll and sales records. (See Docket Entry 14.)

8. Plaintiffs filed their Answer and Affirmative Defenses ("AAD") to Defendants' Counterclaims on August 22, 2012. (See Docket Entry 16.)

9. CI is a licensed property casualty insurance provider. It is a member of the Pennsylvania Compensation Rating Bureau ("PCRB"). (See Countercl. ¶ 2; AAD ¶ 2.)

10. Alfred F. Bauer, Jr. has been Baseline's President and owner since it was founded in 1996. He has been Siteline's Secretary/Treasurer since it was founded in 1999. (DSOF Ex. 4, Aug. 15, 2013 Dep. of Alfred Bauer ("Bauer Dep.") at 12:19-13:17, 14:12-18, 18:24-19:3.)

11. Mr. Bauer was involved in procuring Plaintiffs' insurance coverage. He was also involved in specific workers compensation claims at issue here. (See id. at 17:19-18:1.)

12. Kim Niswender has served as Baseline's office manager since 1996. She has been Siteline's office manager since its formation in 1999. She is Baseline's Assistant Secretary. (DSOF Ex. 5, Oct. 3, 2013 Dep. of Kim Niswender ("Niswender Dep.") at 10:11-13, 13:25-14:18, 17:8-14, 18:12-19:24.)

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13. Mr. Bauer understood that CI provided Plaintiffs with the best coverage possible at the best prices. His companies maintained policies from CI through 2011. (See Bauer Dep. at 55:15-19; see also Niswender Dep. at 28:22-30:5.)

14. Until 2010, Plaintiffs paid certain premiums directly to their insurance broker, HMK. (See Niswender Dep. at 23:21-24:12, 27:20-24, 28:22-30:5, 45:6-11.)

15. Since 1999, the CI policies had audited premiums. The final WCI premium amount due from Plaintiffs resulted from audits of the Plaintiffs' actual payroll information. The final GL premium amount due from Plaintiffs resulted from audits of the Plaintiffs' payroll expenditures. In some years, the audit resulted in refunds on the initial premiums paid at the outset of the coverage. (See Niswender Dep. at 45:17-51:19, 90:2-22, 93:18-96:1.)

16. After the 2010 audit, Baseline paid an additional premium due of $12,998 for the CP Policy. This payment went to HMK. At that time, Baseline received a return of premium for its WCI Policy of $304. Furthermore, Siteline paid an additional premium of $13,168 for its WCI Policy. (See Niswender Dep. at 89:20-90:18, 92:24-93:23, 95:6-9, 96:10-15.)

17. After the 2011 audit, premium audit statements were issued by CI to Plaintiffs through HMK. Those statements reflected that Baseline owed an additional premium of $758 for its 2010-2011 WCI Policy, Siteline owed an additional premium of $88,039 for its 2010-2011 WCI Policy, and Baseline and Siteline owed an additional premium of $43,687 for the 2010-2011 CP Policy. (See DSOF Ex. 6, Aff. of Bill Jansen; DSOF Ex. 7, Niswender Dep. Ex. Kim-2.)

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18. After the 2011 audit, Plaintiffs received three letters from HMK dated July 15, 2011. Those letters stated that Baseline and Siteline owed additional premiums in the amounts reflected in the premium audit statements. Those amounts were $758, $88,039 and $43,687. (Niswender Dep. Ex. Kim-2; see also Niswender Dep. at 96:16-100:7, 105:21-106:14.)

19. The three HMK letters included the premium audit statements issued by Defendants. (See Jansen Aff.; Niswender Dep. Ex. Kim-2.)

20. Ms. Niswender, in her role as office manager, received the three July 15, 2011 letters from HMK in the regular course of business. This was Plaintiffs' first notice that these additional premiums were owed. (See DSOF Ex. 6; see also Niswender Dep. at 14:3-6, 16:20-22, 25:14-19, 96:10-100:7, 105:21-106:14, and 108:10-14.)

21. Upon receipt of HMK's three letters, Niswender understood that the audit had been completed and the additional premiums were based on actual payroll exposures, derived from the audited payroll figures. She also understood that those payroll figures were higher than those used for the estimated payroll figures in certain job classifications. Niswender stated that, although she had no reason to believe that the initial, estimated premium was incorrectly calculated or that the audit was performed incorrectly, she believed that certain underlying data used in those calculations was inaccurate. (See Niswender Dep. at 97:21-108:3, 130:16-133:25.)

22. Both Niswender and Bauer received and read a September 6, 2011 letter from CI. This was done in the regular course of their business. That letter stated that Plaintiffs' broker HMK asked CI to collect the total amount of $132,484 directly from Plaintiffs.

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(See DSOF Ex. 8; Niswender Dep. at 14:3-6, 16:20-22, 25:14-19, 108:15-109:6; see also Bauer Dep. at 110:13-111:21.)

23. Mr. Bauer did not respond to Defendants' September 6, 2011 letter. (See Bauer Dep. at 111:13-15.) However, he responded to the content of the letter through email and phone conversations with CI employee Amy Hacker. (See id. at 98:17-99:6, 99:20-100:17.)

24. Ms. Niswender and Mr. Bauer each received and read a January 6, 2012 letter from Thomas McMackin, Esquire. Mr. McMackin is an attorney who represented CI in efforts to collect the unpaid $132,484 additional premium. Ms. Niswender and Mr. Bauer received the January 6, 2012 letter in the regular course of their business. That letter stated that Plaintiffs' additional premiums remained unpaid in the amount of $132,484. (DSOF Ex. 9, Bauer Dep. Ex. Bauer-5; see also Bauer Dep. at 111:22-112:14; see also Niswender Dep. at 14:3-6, 16:20-22, 25:14-19, 112:24-113:16.)

25. Mr. Bauer did not respond to Mr. McMackin's January 6, 2012 letter. (See Bauer Dep. at 112:15-17; see also Niswender Dep. at 13:17-21.)

26. Plaintiffs have stipulated that $132,484 was the amount listed as due and this amount has not been paid. (See Niswender Dep. at 109:9-15, 109:25-110:1.)

27. Plaintiffs have never paid the $132,484.00 premium amount that resulted from the 2011 premium audit. (See Bauer Dep. at 111:16-21; see also Niswender Dep. at 108:4-9, 109:21-23.)

28. Mr. Bauer...