Essentia Insurance Company v. Stephens

Decision Date30 March 2021
Docket NumberNO. 5:20-CV-175-FL,5:20-CV-175-FL
Citation530 F.Supp.3d 582
Parties ESSENTIA INSURANCE COMPANY, Plaintiff, v. Herbert STEPHENS, Defendant.
CourtU.S. District Court — Eastern District of North Carolina

Jennifer A. Welch, Cranfill Sumner & Hartzog LLP, Raleigh, NC, for Plaintiff.

Walter C. Holton, Jr., Holton Law Firm, PLLC, Winston-Salem, NC, for Defendant.


LOUISE W. FLANAGAN, United States District Judge

This matter is before the court on plaintiff's motion for judgment on the pleadings and to dismiss counterclaims for failure to state a claim. (DE 15). The motion has been briefed fully, and in this posture the issues raised are ripe for ruling. For the reasons that follow, plaintiff's motion is granted.


Invoking the court's diversity jurisdiction, plaintiff commenced this action April 28, 2020, for declaratory judgment that defendant is not entitled under the policy at issue to underinsured motorist benefits in the amount of $100,000.00. In response, defendant counterclaimed that plaintiff has engaged in unfair and deceptive acts and practices in violation of North Carolina's Unfair and Deceptive Trade Practices Act ("UDTPA"), breached its contract, breached its duty of good faith, and wrongfully interfered with prospective contract. Defendant seeks punitive damages and a declaration that plaintiff has a duty to provide this coverage to defendant.

On August 12, 2020, plaintiff filed the instant motion for judgment on the pleadings on its own declaratory judgment claim, and to dismiss defendant's counterclaims under Rule 12(b)(6) of the Federal Rules of Civil Procedure.


The facts alleged in the pleadings, viewed in the light most favorable to defendant, may be summarized as follows. On September 22, 2019, defendant was rear-ended by a drunk driver while riding as a passenger in his own car. (Compl. ¶ 1; Answer ¶ 6; Counterclaim ¶¶ 9-10). The offending driver's vehicle was insured under another's name by GEICO Choice ("GEICO") in the amount of $50,000.00 for bodily injury liability. (Compl. ¶ 7; Compl. Ex. E, (DE 1-5) at 1; Answer Ex. 2, (DE 10-2) at 1). Defendant held an underinsured motorist ("UIM") policy with Integon Preferred Insurance Company ("Integon") that provided coverage in the amount of $100,000.00 per accident, and defendant held a similar policy with Hagerty Insurance Agency, LLC, ("Hagerty Insurance Agency") underwritten by plaintiff (the "Essentia Policy"). (See Compl. ¶¶ 8-10; Compl. Ex. A, (DE 1-1) at 1, 11-131 ).

On March 11, 2020, defendant executed a covenant not to enforce judgment with GEICO for $50,000.00 (the "GEICO Covenant") and an underinsured motorist release with Integon for $50,000.00 (the "Integon Release"). (Compl. ¶¶ 12-14; Answer ¶¶ 12-14; Compl. Exs. B, C (DE 1-2, -3)). Funds from Integon and GEICO were deposited in defendant's counsel's trust account on March 12, 2020. (Answer ¶ 17). Both documents were mailed March 16, and the GEICO Covenant was received by GEICO on March 20 and the Integon Release by Integon sometime later. (Compl. ¶¶ 12-14; Answer ¶¶ 12-14; Compl. Exs. B, C (DE 1-2, -3)). On March 16, a portion of these funds were dispersed to defendant. (Compl. ¶ 19; Answer ¶ 19).

Also on March 16, 2020, plaintiff, through its representative Stephen G. Shepstone ("Shepstone"), learned of the September 22, 2019, accident through another party making a claim, under defendant's policy with plaintiff, based on the accident. (Compl. ¶ 16; Answer ¶ 16; Pl.’s Memo. Supp. (DE 16) 5). On March 17, after defendant had mailed the GEICO Covenant and Integon Release, plaintiff reached out to defendant and informed him of the third party's claim. (Answer ¶ 16; Pl.’s Memo. Supp. (DE 16) 5). This conversation, according to defendant, was how defendant "became aware that he had underinsured coverage through [p]laintiff's policy." (Answer ¶ 16). Accordingly, the same day, defendant mailed a letter to plaintiff advising that "GEICO ha[d] tendered its liability limits of $50,000" and that defendant's counsel was preparing a lawsuit against the impaired driver, and asking plaintiff to advise defendant if plaintiff "wish[ed] to advance payment to [defendant] in an amount equal to the tentative settlement of $50,000.00." (Compl. Ex. D (DE 1-4)). Defendant avers that same day, March 17, 2020, he contacted GEICO to advise it of his policy with plaintiff, that he had mailed the GEICO Covenant before finding this out, and, accordingly, that he requested GEICO to hold the GEICO Covenant in abeyance. (Answer ¶ 18). GEICO initially agreed to this request. (Id.).

The following day defendant sent a letter to plaintiff demanding the underinsured motorist limit of $100,000.00 under the Essentia policy. (Compl. Ex. E (DE 1-5)). Plaintiff responded that defendant had not followed the mandatory notice of settlement requirements under the policy and North Carolina law. It was explained that accordingly no underinsured motorist coverage was available to him. (Compl. ¶ 26; Compl. Ex. F (DE 1-6)). Defendant responded that he had "placed all settlement discussions on hold and all parties agree[d] to allow Hagerty [Insurance Agency] the opportunity to review the claim and determine if Hagerty [Insurance Agency] would like to preserve its right of subrogation by advancing payment of the liability limits of $50,000." (Compl. Ex. G, (DE 1-7) at 1). The funds that had previously been dispersed to defendant were returned to defendant's counsel's trust account on March 20, 2020. (Compl. ¶ 19; Answer ¶ 19).

On April 8, 2020, plaintiff contacted GEICO, inquiring whether it intended to reopen settlement discussions with defendant, to which GEICO responded in the affirmative. (Answer ¶ 23; Pl.’s Memo. Supp. Mot. (DE 16) at 6). Plaintiff informed GEICO that if it were to do so, plaintiff would seek subrogation against GEICO's insured. (Answer ¶ 23; Pl.’s Memo. Supp. Mot. (DE 16) at 6). According to defendant, because of this, GEICO informed defendant that it could not voluntarily agree to withhold the GEICO Covenant. (Answer ¶ 23).

The Essentia Policy states, in relevant part, that plaintiff "do[es] not provide coverage for bodily injury caused by an underinsured motor vehicle and sustained by any insured ... [i]f that insured ... settles the bodily injury claim without [plaintiff's] consent." (Compl. Ex. A, (DE 1-1) at 12). The policy states further, however, that the "exclusion does not apply if [plaintiff] ... [has] been given written notice in advance of a settlement ... and ... [plaintiff] fail[s] to advance payment to the insured in an amount equal to the tentative settlement within thirty days ... of such written notice." (Id.). The policy also states under the provision regarding combined uninsured/underinsured motorists coverage that if the insurer "make[s] a payment under this coverage and the person to or from whom payment was made has a right to recover damages from another, [the insurer] shall be subrogated to that right." (Id. at 13). "Further, the execution of a covenant not to enforce judgment by the injured party shall not preclude [the insurer] from pursuing [its] right to sue for or otherwise recover any payment made under this coverage from anyone else who may be liable." (Id.). The rights do not apply, however, against "the owner or operator of an under-insured motor vehicle if [the insurer] ha[s] been given written notice in advance of a settlement and fail[s] to advance payment in an amount equal to the tentative settlement within 30 days following receipt of such notice." (Id.).

A. Standard of Review

To survive a motion to dismiss under Rule 12(b)(6), a pleading "must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 663, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "Factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. In evaluating whether a claim is stated, "[the] court accepts all well-pled facts as true and construes these facts in the light most favorable to the [the non-movant]," but does not consider "legal conclusions, elements of a cause of action, ... bare assertions devoid of further factual enhancement[,] ... unwarranted inferences, unreasonable conclusions, or arguments." Nemet Chevrolet, Ltd. v., Inc., 591 F.3d 250, 255 (4th Cir. 2009) (quotations omitted).

Similarly, motions for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) are typically adjudged under the same standard as motions under Rule 12(b)(6). See Butler v. United States, 702 F.3d 749, 752 (4th Cir. 2012). The court "must view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party." Pa. Nat'l Mut. Cas. Ins. Co. v. Beach Mart, Inc., 932 F.3d 268, 274 (4th Cir. 2019) (quotation omitted). "A motion for judgment on the pleadings may be granted only if the moving party clearly establishes that no material issue of fact remains to be resolved and that he or she is entitled to judgment as a matter of law." Nat'l Fid. Life Ins. Co. v. Karaganis, 811 F.2d 357, 358 (7th Cir. 1987) ; see Drager v. PLIVA USA, Inc., 741 F.3d 470, 474 (4th Cir. 2014) ; Hartford Cas. Ins. Co. v. Davis & Gelshenen, LLP, 801 F. App'x 915, 916 (4th Cir. 2020).

Under both standards, the court may consider documents attached to the pleadings. Fed. R. Civ. P. 10(c) ; Fayetteville Invs. v. Com. Builders, Inc., 936 F.2d 1462, 1465 (4th Cir. 1991).

B. Analysis
1. Motion for Judgment on the Pleadings

Plaintiff seeks a declaration by the court that defendant is not entitled to underinsured motorist benefits under the Essentia Policy for any bodily injuries sustained by defendant as a result of the accident described in the...

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