Dollar Tree Stores, Inc. v. Crum & Forster Specialty Ins. Co., Docket No.: CL15-4612
| Decision Date | 23 December 2015 |
| Docket Number | Docket No.: CL15-4612 |
| Court | Circuit Court of Virginia |
| Parties | DOLLAR TREE STORES, INC., et al. Plaintiffs, v. CRUM & FORSTER SPECIALTY INSURANCE COMPANY, et al. Defendants. |
This matter came before the Court on demurrers filed by Defendants Crum & Forster Specialty Insurance Company and Peachtree Playthings, Incorporated. The parties have thoroughly briefed their respective positions and presented argument before the Court ore tenus. The Court has previously ruled on the demurrers to all other counts. The Court took under advisement Crum & Forster's demurrer to Count 3 of the Complaint, pending additional briefing by the parties. For the reasons stated herein, the Court holds that Plaintiffs have adequately alleged a cause of action against Crum & Forster in Count 3. Therefore, the demurrer to Count 3 is OVERRULED.
FACTUAL BACKGROUND
The present litigation follows a products liability action filed in the United States District Court for the Eastern District of Pennsylvania against Dollar Tree and others. Plaintiff in that action claimed that his daughter choked to death on a piece of a children's coloring set sold by Dollar Tree. He filed a wrongful death complaint against, inter alia, Dollar Tree and the manufacturer of the item, Peachtree Playthings, Inc.
The action implicated several insurance policies relevant to the instant litigation:
The parties to the products liability action, together with their respective insurers, voluntarily settled the products liability litigation in May 2014 for $4.3 million. In a Memorandum of Understanding memorializing the terms of their agreement, the parties recited that they "agree that the settlement amount is fair reasonable" and that they "reserve all of their rights and claims and defenses." Compl., Ex. A. The parties agreed that jurisdiction over any future litigation concerning the settlement would lie in this Court and in the Norfolk Division of the United States District Court for the Eastern District of Virginia. Id.
The parties funded the $4.3 million settlement as follows:
In this litigation, Plaintiffs contend that Crum & Forster was obligated under the Crum & Forster Policy to insure Dollar Tree for all amounts owed under the settlement. Specifically, Plaintiffs argue that Dollar Tree was an "insured" under the Seneca Policy and thereby a "named insured" under the Crum & Forster Policy. Plaintiffs claim that, under the Crum & Forster Policy, Crum & Forster became an excess insurer for Dollar Tree upon the exhaustion of the policy limits of all "underlying insurance," which it defines as the Seneca Policy. Plaintiffs allege that the Seneca Policy became exhausted when Seneca contributed $1 million toward the settlement on behalf of the Peachtree Defendants. As such, Plaintiffs claim that Crum & Forster became obligated to reimburse Dollar Tree, its "insured," for any loss Dollar Tree incurred in excess of the Seneca Policy. Plaintiffs characterize their payments made in satisfaction of Dollar Tree's $2 million obligation under the settlement agreement as a "loss" under the Crum & Forster Policy such that the Policy obligated Crum & Forster to insure Dollar Tree for this amount.
Plaintiffs further assert that American Guarantee was obligated under its policy to reimburse Dollar Tree for damages in excess of the policy limits of any other insurance available to Dollar Tree. Plaintiffs allege that both the Arch Policy and the Seneca Policy became exhausted after those insurers paid each of their respective policy limits, but Crum & Forster refused to provide indemnity coverage to Dollar Tree under its Policy. Consequently, Plaintiffs claim, American Guarantee became secondarily liable as an excess insurer on Dollar Tree's obligation to pay $2 million toward the settlement. American Guarantee paid $1 million toward satisfying this obligation and here contends that it is subrogated to Dollar Tree's right under the Crum & Forster Policy to indemnification from Crum & Forster for this amount.
Dollar Tree and American Guarantee commenced this action to recover their combined $1.25 million payment by filing a seven-count complaint outlining various theories of recovery. Crum & Forster demurred to the four counts of Plaintiffs' complaint that sought relief against it (Counts I, II, IV, and VII). At a hearing on the demurrers, the Court sustained the demurrer as to Count 1 (declaratory and equitable relief), overruled the demurrer as to Counts 2 (breach of contract) and 7 (declaratory relief), and took the demurrer to Count 3 (equitable subrogation) under advisement.1
STANDARD OF REVIEW
"The purpose of a demurrer is to determine whether a motion for judgment states a cause of action upon which the requested relief may be granted." Mansfield v. Bernabei, 284 Va. 116, 120-21, 727 S.E.2d 69, 72 (2012) (quoting Dunn, McCormack & MacPherson v. Connolly, 281 Va. 553, 557, 708 S.E.2d 867, 869 (2011)). Accordingly, in considering a demurrer, a court does not "evaluate and decide the merits of a claim"; rather, the court only considers "the sufficiency of factual allegations to determine whether the motion for judgment states a cause of action." Fun v. VMI, 245 Va. 249, 252, 427 S.E.2d 181, 183 (1993). A demurrer "admits the truth of all material facts that are properly pleaded, facts which are impliedly alleged, and facts which may be fairly and justly inferred from alleged facts." Delk v. Columbia/HCA Healthcare Corp., 259 Va. 125, 129, 523 S.E.2d 826, 829 (2000) (quoting Cox Cable Hampton Roads, Inc. v. City of Norfolk, 242 Va. 394, 397, 410 S.E.2d 652, 653 (1991)).
In ruling on a demurrer, the court "may examine not only the substantive allegations of the pleading attacked but also any accompanying exhibit mentioned in the pleading." Flippo v. F & L Land Co., 241 Va. 15, 17, 400 S.E.2d 156 (1991). "When a . . . complaint contains sufficientallegations of material facts to inform a defendant of the nature and character of the claim, it is unnecessary for the pleader to descend into statements giving details of proof in order to withstand demurrer." CaterCorp, Inc. v. Catering Concepts, Inc., 246 Va. 22, 24, 431 S.E.2d 277, 279 (1993) (citing Hunter v. Burroughs, 123 Va. 113, 129, 96 S.E. 360, 365 (1918)). Therefore, even though the complaint "may be imperfect, when it is drafted so that [a] defendant cannot mistake the true nature of the claim, the trial court should overrule the demurrer." Id. (citing Alexander v. Kuykendall, 192 Va. 8, 14-15, 63 S.E.2d 746, 749-50 (1951)).
DISCUSSION
Crum & Forster argues that a party may only assert a claim of equitable subrogation where (1) it has paid another's "entire debt," and (2) it did not make that payment as a "volunteer." Crum & Forster Mem. in Supp. of Dem. at 16 (citing 73 Am. Jur. 2d Subrogation § 5 (2005)). Here, Crum & Forster contends that Plaintiffs have failed to plead a cause of action for equitable subrogation because (1) American Guarantee made its $1 million payment as a "volunteer," participating voluntarily in the settlement when it was under no obligation to do so, and (2) as Arch and Dollar Tree paid the other half of Crum & Forster's alleged $2 million obligation to Dollar Tree under the Crum & Forster Policy, American Guarantee's $1 million payment did not satisfy the "entire debt" at issue. Id. at 16-17.
Subrogation is "the substitution of another person in the place of the creditor to whose rights he succeeds in relation to [a] debt." Fed. Land Bank v. Joynes, 179 Va. 394, 401, 18 S.E.2d 917, 920 (1942). Equitable subrogation "is subrogation that arises by operation of law," and "is not based on contract or privity of parties, but is 'purely equitable in nature, dependent on the facts and circumstances of each particular case.'" XL Specialty Ins. Co. v. DOT, 269 Va. 362, 369, 611 S.E.2d 356, 360 (2005) (quoting Centreville Car Care, Inc. v. North Am. Mortg., 263 Va. 339,345, 559 S.E.2d 870, 872 (2002)). The doctrine of equitable subrogation applies when an individual "pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter." Fed. Land Bank, 179 Va. at 402, 18 S.E.2d at 920. Under Virginia law, an individual who discharges a debt for which it is secondarily liable is subrogated to any rights the creditor possesses against the party who was primarily liable. In Thompson v. Miller, 195 Va. 513, 79 S.E.2d 643 (1954), the Supreme Court of Virginia held that:
Whenever one person is compelled to pay a debt or discharge an obligation for which he is only secondarily liable, in person or in property, and hence has recourse over against the person or the property primarily liable, for exoneration or contribution, a court of equity will subrogate the person thus secondarily liable to the position of the creditor whom he has satisfied, as to every lien, preference or other special advantage possessed by the latter at the time of such payment.
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