Enterprising Solutions, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 2:10-cv-01430-PHX-REJ

• Decision Date: 11 September 2012
• Docket Number: No. 2:10-cv-01430-PHX-REJ,2:10-cv-01430-PHX-REJ
• Parties: Enterprising Solutions, Inc., a Nevada corporation, doing business as Sunwest Employer Services, Plaintiff, v. National Union Fire Insurance Company o Pittsburgh, PA, a Pennsylvania corporation, Defendant.
• Court: U.S. District Court — District of Arizona

Enterprising Solutions, Inc., a Nevada corporation,doing business as Sunwest Employer Services, Plaintiff,

v. National Union Fire Insurance Company o Pittsburgh, PA,a Pennsylvania corporation, Defendant.

No. 2:10-cv-01430-PHX-REJ

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Dated: September 11, 2012

OPINION AND ORDER

Joyce N. Van Cott

Ryan J. Talamante

VAN COTT & TALAMANTE PLLC

Attorneys for Plaintiff

Adam E. Lang

SNELL & WILMER

Amy M. Samberg

SNELL & WILMER LLP - Tucson, AZ

In this insurance coverage dispute, plaintiff Enterprising Solutions, Inc., dba Sunwest Employer Services, filed this action against defendant National Union Fire Insurance Company in Arizona state court, alleging claims for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. Defendant removed the action to federal court onthe basis of diversity jurisdiction.

The action is now before the court on plaintiff's renewed motion for partial summary judgment and defendant's renewed motion for summary judgment (## 71, 81). Both motions address only plaintiff's first claim, for declaratory relief. I have thoroughly reviewed the parties' arguments and submissions, and for the reasons explained below, I deny plaintiff's motion and grant defendant's motion. Plaintiff's Request for Telephonic Status Conference (#109) is denied.

STANDARD

Summary judgment should be granted if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). If the moving party shows that there are no genuine issues of material fact, the non-moving party must go beyond the pleadings and designate facts showing an issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A scintilla of evidence, or evidence that is merely colorable or not significantly probative, does not present a genuine issue of material fact. United Steelworkers of America v. Phelps Dodge, 865 F.2d 1539, 1542 (9th Cir. 1989).

The substantive law governing a claim determines whether a fact is material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see also T.W. Elec. Service v. Pacific Elec. Contractors, 809 F.2d 626, 630 (9th Cir. 1987). Reasonable doubts as to the existence of a material factual issue are resolved against the moving party. T.W. Elec. Service, 809 F.2d at 631. Inferences drawn from facts are viewed in the light most favorable to the non-moving party. Id. at 630-31.

The standard of review is the same for cross-motions as individual motions for summary judgment: "'The court must consider each motion independently and, when evaluating each, the court must consider the facts in the light most favorable to the non-moving party.'" Winans v. Starbucks Corp., 796 F.Supp.2d 515, 517-18 (S.D.N.Y. 2011)(quoting Morales v. Quintel Entm't, Inc., 249 F.3d 115, 121 (2d Cir. 2001)); see also, e.g., Nipponkoa Insurance Co. v. Norfolk Southern Railway Co., 794 F.Supp.2d 838 (S.D. Ohio 2011).

FACTUAL BACKGROUND

This coverage dispute arises out of plaintiff's admitted failure to properly calculate the necessary contributions to fully fund a group medical and group dental plan, which caused plaintiff to terminate the plans effective August 19, 2009. The present action, between plaintiff and its insurer, defendant National Union Fire Insurance Co., concerns whether plaintiff's policies with defendant cover the claims against plaintiff resulting from termination of the plans.

The following factual background is drawn from the parties' statements of fact and is limited to those facts the court deems relevant to this decision. Unless otherwise noted, the facts set forth below are undisputed for purposes of the present motions.¹

a. Plaintiff

Plaintiff is a professional employer organization ("PEO") that provides services to employers by assuming various employer-related responsibilities, such as payroll services. As a PEO, plaintiff assumes the various employer-related responsibilities by entering into "co-employer agreements" with its employer-clients. Under the agreements, plaintiff becomes a co-employer of the employer-client's employees.

One of the PEO services plaintiff offered to its employer-clients was the administration of an employee health benefit program. The benefit plan documents, Exhibits C (group health) and D (dental) to plaintiff's Statement of Facts in Support of Motion for Partial Summary Judgment ("PSOF"), specify, among other things, the names of the plans, the type of plan, the Plan Administrator, the Plan Sponsor, and the Claims Administrator. See PSOF, Exhibit ("Exh.") C, p. 83; Exh. D, p. 34. The group health plan designates Enterprising Solutions, Inc. dba Sunwest Employers Services, Inc., as the Plan Name, Plan Sponsor, and Plan Administrator, and Benefit Systems & Services ("BSSI") as the Claims Administrator. The only difference between the group health plan and the dental plan with respect to the above is the Plan Name for the dental plan, whichis Enterprising Solutions, Inc. dba Sunwest Employers Services Inc. Group Standard Dental Plan. I refer to the plans in this decision as the "Sunwest Plans." Both plans are self-funded. See Exh. C, p. 83; Exh. D, p. 34.

Among other things, plaintiff was responsible for determining the amount of contributions to the Sunwest Plans, making sure that the contributions covered the medical and dental claims and other expenses of the plans, properly receiving and processing information and noticing errors that would have reduced or avoided losses sustained by the plans, and taking appropriate remedial measures when necessary.

Plaintiff established the amount of contributions required to be paid into the Sunwest Plans by the employers and employees each year based on, e.g., prior claim history, incurred but not reported claims, records in plaintiff's possession, general claim trends, and other information plaintiff received from the Claims Administrator, BSSI. The aggregate amount of contributions from the employers and employees was intended to cover all costs of the Sunwest Plans for each plan year, including all claims for benefits.

The contribution levels plaintiff established for 2008 and 2009 were insufficient to cover all claims and expenses. Consequently, plaintiff notified the plan participants that it was terminating the Sunwest Plans effective August 19, 2009. According to plaintiff, since April 2009, it has received over 550 complaints from various Sunwest Plans claimants, which plaintiff describes as "Sunwest Plan participants," "the participants' co-employers," and "the contracted medical providers." Complaint, ¶ 36. Defendant disputes the number of complaints, but the dispute over numbers is not material to my decision. Defendant notes that of the claims, it has defended or settled seven on plaintiff's behalf, subject to a reservation of rights. See National Union's Renewed Motion for Summary Judgment, p. 3 and p. 3 n.2.

b. The Insurance Policies²

On March 31, 2008, defendant issued a Staffing Services Liability Policy to plaintiff, effective March 31, 2008, through March 31, 2009. The Staffing Services Liability Policy was renewed and the renewal policy was effective from March 31, 2009, to March 31, 2010. In all respects relevant to the pending motions, the policies are identical.³

The Staffing Services Liability Policy gave plaintiff several different types of coverage, including coverage for "Wrongful Acts, Errors and Omissions" (Coverage A). Coverage A provides:

We will pay those sums you are legally obligated to pay to compensate others for loss resulting from your wrongful act or that of another for whom you are legally responsible. The wrongful act must first take place during the policy period and solely in the conduct of your business as a staffing service or as a personnel placement service in the Coverage Territory.

Defendant's Statement of Facts in Support of Renewed Motion for Summary Judgment ("DSOF"), Exh. 1, p. 003. The Staffing Services Liability Policy included an Employee Benefit Liability ("EBL") Endorsement and a PEO Endorsement.

(1) The PEO Endorsement

The PEO Endorsement includes several definitions that amend the Staffing Services Liability Policy. See DSOF, Exh. 1, pp. 036-037. The PEO Endorsement defines "staffing services" as "service(s) performed for clients for a fee to supply that client with a staffing service employee(s)." Id. at 036. Staffing services "includes professional employer organization (PEO)." Id. The PEO Endorsement defines PEO to mean:

an employer whose business is to contractually assume defined employer responsibilities of a client's workers. This employer provides integrated business services to manage human resource responsibilities. The employer delivers these services by establishing and maintaining an employer relationship with the workers assumed from its clients by a contract that defines certain employer rights and responsibilities for its clients and leased employees.

Id.

The PEO Endorsement defines "wrongful act" as:

[A]ny breach of duty, neglect, error, misstatement, misleading statement or omission in performing or failing to perform services for others for a fee in the administration of leased employees assumed from the client.

DSOF, Exh. 1, p. 037. The PEO Endorsement excludes from Coverage A (Wrongful Acts, Errors and Omissions) of the Staffing Services Liability Policy "[a]ny Insured's failure to fulfill any duty or obligation imposed by the Employment Retirement Income Security Act of 1974, including amendments to that law, or similar federal, state, or local statutory or common law." Id.

(2) The EBL Endorsement

The EBL Endorsement provided coverage to plaintiff pertaining to the employee benefits program for:

all sums which you shall become legally obligated to pay as damages because of any claim made against you for "wrongful acts" arising out of the "administration" of your "employee benefits program", as

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