Fluharty v. Peoples Bank, Na, Peoples Ins. Agency, LLC, CIVIL ACTION NO. 3:17-4220

• Decision Date: 24 July 2018
• Docket Number: CIVIL ACTION NO. 3:17-4220
• Court: U.S. District Court — Southern District of West Virginia
• Parties: THOMAS H. FLUHARTY, Trustee of the Chapter 11 Bankruptcy Estates of Dennis Ray Johnson, II (No. 3:16-BK-30227); DJWV2, LLC (No. 3:16-BK-30062); Southern Marine Services, LLC (No. 3:16-BK-30063); Southern Marine Terminal, LLC (No. 3:17-BK-30064); Redbud Dock, LLC (No. 3:16-BK-30398); Green Coal, LLC (No. 3:16-BK-30399); Appalachian Mining & Reclamation, LLC (No. 3:16-BK-30400) Producer's Land, LLC (3:16-BK-30401); Producer's Coal, Inc. (3:16-BK-30402); Joint Venture Development, LLC (No. 3:16-BK-30403), Plaintiffs, v. PEOPLES BANK, NA, PEOPLES INSURANCE AGENCY, LLC, and GREAT AMERICAN INSURANCE COMPANY OF NEW YORK. Defendants.

THOMAS H. FLUHARTY, Trustee of the Chapter 11 Bankruptcy Estatesof Dennis Ray Johnson, II (No. 3:16-BK-30227); DJWV2, LLC (No. 3:16-BK-30062);Southern Marine Services, LLC (No. 3:16-BK-30063); Southern Marine Terminal, LLC (No. 3:17-BK-30064);Redbud Dock, LLC (No. 3:16-BK-30398); Green Coal, LLC (No. 3:16-BK-30399);Appalachian Mining & Reclamation, LLC (No. 3:16-BK-30400) Producer's Land, LLC (3:16-BK-30401);Producer's Coal, Inc. (3:16-BK-30402); Joint Venture Development, LLC (No. 3:16-BK-30403), Plaintiffs, v. PEOPLES BANK, NA, PEOPLES INSURANCE AGENCY, LLC,and GREAT AMERICAN INSURANCE COMPANY OF NEW YORK. Defendants.

CIVIL ACTION NO. 3:17-4220

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA HUNTINGTON DIVISION

July 24, 2018

MEMORANDUM OPINION AND ORDER

Great American Insurance Company of New York's ("Great American")Motion to Dismiss is currently pending before this Court.In that motion, Great American requests that this Court dismiss Plaintiff's claims against it.Supporting that request, Great American argues, in essence, that Plaintiff has admitted noncompliance with the terms of the insurance policy.Great Am.'s Mot. to Dismiss, ECF No. 20, at 1-2.Based upon that alleged noncompliance, Great American contends that Plaintiff can neither maintain a breach of contract claim nor a bad faith claim.Id. at 2.However, as explained below, the Court disagrees with Great American's argument.Therefore, the CourtDENIES Great American's Motion to Dismiss(ECF No. 20).

Having previously addressed other motions to dismiss filed in this case, the Court will not recount the complete, complex factual background of this case.For a brief overview of the facts of this case, review the orders already issued by this Court.SeeFluharty v. Peoples Bank, NA ("June Order"), No. 3:17-4220, 2018 WL 3097329, at *1-*2(S.D.W. Va.June 22, 2018)(describing background);Fluharty v. Peoples Bank, NA ("April Order"), No. 3:17-4220, 2018 WL 1954829, at *1(S.D.W. Va.Apr. 24, 2018)(same).

However, the Court will provide a brief introduction of the facts particular to Great American's involvement in this matter.Great American issued an insurance policy to one of the Coal Group¹ entities, Southern Marine Terminal LLC("SMT"), with the PolicyNo. MAC 4025594.Great Am.'s Mem. in Supp. of Mot. to Dismiss, ECF No. 21, at 3.²That policy, effective from November 21, 2014 until November 21, 2015, covered SMT's Ivel coal wash plant.Seeid. at 2-3.The Ivel plant suffered a belt collapse on May 18, 2018, which caused physical damage to the facility and hampered the operation of both SMT specifically and the Coal Group generally.SeeJune Order, at *1-*2.

SMT submitted claims for both property loss and business interruption arising from the belt collapse.Compl., ECF No. 1, at ¶¶ 34, 50.Although Great American did issue payment for the property loss claim, it refused to pay out on the business interruption claim beyond a $100,000advance in early December of 2015.Id. at ¶¶ 50, 65, 80, 85, 218.From these circumstances, Plaintiff brought the current claims against Great American.

Plaintiff claims that Great American's actions constitute two separate, wrongful acts.³First, Plaintiff claims that Great American, in concert with the other defendants, made the payment for the property damage claim in bad faith.Id.;Pl.'s Resp. to Great Am.'s Mot. to Dismiss, ECF No. 32, at 7.And, second, Plaintiff claims that Great American refused to fulfill its obligations to satisfy in full the business interruption claim.Id.;Pl.'s Resp. to Great Am.'s Mot. to Dismiss, ECF No. 32, at 7.

Great American bases its argument for dismissal upon two basic premises: (1)"Plaintiff's Complaint fails to state a breach of contract claim;"(2)"Plaintiff admits [through allegations contained in his Complaint] that SMT failed to comply with the [insurance policy's] conditions precedent."Great Am.'s Mem. in Supp. of Mot. to Dismiss, at 7, 9.The second premise, according to Great American, requires dismissal for two independent, but related reasons.Failure to comply, or allege compliance, with the conditions precedent of the insurance policy contract both prevents Plaintiff from bringing a "legal action" against Great American, and "negates coverage under the Policy."Id. 9-14.In other words, because SMT did not comply with the conditions precedent aslaid out in the contract, he cannot bring suit under the contract, and the policy coverage terminated, thus there was no effective obligation under which Plaintiff can state a claim.

Specifically, Great American focuses upon Plaintiff's, or SMT's, failure "to submit to an examination under oath [or] provide proof of loss."Great Am.'s Mem. in Supp. of Mot. to Dismiss, at 12.According to the insurance policy contract, those two conditions precedent must be fulfilled before "[an insured] may bring a legal action against [Great American] under this [policy]."Id. at 3.Great American points out that Plaintiff"admits that SMT failed to comply" with these requirements.Id. at 9.As such Great American argues that Plaintiff cannot maintain a lawsuit against it under the insurance policy contract.

In addition to arguing that Plaintiff improperly commenced this action, Great American contends that Plaintiff's failure to satisfy those two conditions precedent prior to filing suit "negates coverage under the Policy."Id. at 13.Failure to comply with the policy contract's terms, Great American reasons, breaches the contract, and thereby ends coverage.Thus, where no coverage exists, Great American contends that Plaintiff may not maintain his bad faith claims on behalf of SMT and the Coal Group.Cognizant of these arguments made by Great American, the Court reviews Plaintiff's Complaint under the 12(b)(6) standard.

To overcome a motion to dismiss under Federal Rule 12(b)(6), a complaint must state a plausible claim.Bell Atl. Corp. v. Twombly, 550 U.S. 544, 546(2007).This standard requires a plaintiff to set forth the "grounds" for an "entitle[ment] to relief" that is more than mere "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do."Id. at 555(internal quotations and citations omitted).A complaint 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, 678(2009)(internal quotations and citation omitted).Facial plausibility exists whena claim contains "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."Id.(citation omitted).

Further, the Court accepts the factual allegations in the complaint as true.Those allegations, however, "must be enough to raise a right to relief above the speculative level . . . . "Twombly, 550 U.S. at 555(citations omitted).If the allegations in the complaint, assuming their truth, do "not raise a claim of entitlement to relief, this basic deficiency should . . . be exposed at the point of minimum expenditure of time and money by the parties and the court."Id. at 558(internal quotations and citations omitted)."Although for the purposes of a motion to dismisswe must take all of the factual allegations in the complaint as true, we are not bound to accept as true a legal conclusion couched as a factual allegation."Iqbal, 556 U.S. at 678(internal quotations and citation omitted).

Hearing this case under federal question subject matter jurisdiction with supplemental state law claims, the Court must apply the choice of law analysis of the forum state to determine what law applies to the claims.SeeIn re Merritt Dredging Co., Inc., 839 F.2d 203, 205-06(4th Cir.1988)("[I]n absence of a compelling federal interest which dictates otherwise, the [rule of applying the forum's choice of law analysis] should prevail . . . .");see alsoMitchell v. HCL Am., Inc., 190 F.Supp.3d 477, 487-88(E.D.N.C.2016)("In federal question cases with supplemental state law claims, the court applies the forum state's choice of law analysis absent an 'overwhelming federal policy that requires the court to formulate a choice of law rule as a matter of independent federal judgment.'"(quotingIn re Merritt Dredging Co., Inc., 839 F.2d at 206)).As such, the Court applies West Virginia conflicts of law principles to determine which law applies to the insurance policy.

Under West Virginia conflicts of law analysis, a court reviewing questions regarding an insurance policy should apply the conflicts rules applicable to contracts.Howe v. Howe, 625 S.E.2d 716, 721(W. Va.2005).Generally, the law of the state where the policy was issued and performed controls an insurance contractual relationship.Kenney v. Indep. Order of Foresters, No. 3:12-CV-123, 2013 WL 1314596, at *4(N.D.W. Va.Mar. 27, 2013)(citingLee v. Saliga, 373 S.E.2d 345, 348(W. Va.1988));see alsoMass. Mut. Life Ins. v. Factory Mut. Ins. Co., No. 3:05-CV-69, 2007 WL 3273452, at *2(N.D.W. Va.2007)(citing same).But West Virginia courts recognize multiple exceptions to that general rule of application.The place where the policy was issued and performed will control unless: (1)the parties made a choice of applicable law in the contract; (2) the other state law offends West Virginia public policy; or (3) another state has a more "significant relationship" to the parties or the policy.SeeHowe, 625 S.E.2d at 721-22;Kenney, 2013 WL 1314596, at *4;Mass. Mut. Life Ins. Co., 2007 WL 3273452, at *1-*2.In this case, the policy was issued in Kentucky, to a Kentucky company, and the loss at the center of the claims against Great American occurred in Kentucky.SeeGreat Am.'s Mem. in Supp. of Mot. to Dismiss, at 6.And none of the three exceptions to the general rule apply in this case.Therefore, the Court will proceed to analyze Great American's motion under the substantive law of Kentucky.

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