Hanover Ins. Co. v. Blue Ridge Prop. Mgmt., LLC

Decision Date28 September 2020
Docket Number1:18CV1018
Citation490 F.Supp.3d 904
CourtU.S. District Court — Middle District of North Carolina
Parties The HANOVER INSURANCE COMPANY, Plaintiff, v. BLUE RIDGE PROPERTY MANAGEMENT, LLC, Defendant.

Richard A. Simpson, Leland H. Jones, IV, Wiley Rein LLP, Washington, DC, for Plaintiff.

Susan Holdsclaw Boyles, Whitney R. Pakalka, Kilpatrick Townsend & Stockton, LLP, Winston-Salem, NC, for Defendant.

MEMORANDUM OPINION AND ORDER

OSTEEN, JR., District Judge

Plaintiff The Hanover Insurance Company ("Hanover") brings a claim for declaratory relief and a money judgment against Defendant Blue Ridge Property Management, LLC ("Blue Ridge"). (Doc. 11.) Plaintiff has filed a Motion for Partial Summary Judgment, (Doc. 48). Defendant has filed a Motion for Partial Summary Judgment on Plaintiff's Duty-to-Defend Claim, (Doc. 51), and a Motion to Stay or Dismiss Plaintiff's Indemnity Claim, (Doc. 52). For the reasons set forth below, the court will deny Plaintiff's motion, and will grant Defendant's motion for partial summary judgment on Plaintiff's duty to defend claim, and Defendant's motion to stay or dismiss Plaintiff's indemnity claim.

I. FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Background
1. Parties

Plaintiff Hanover is a corporation organized under the laws of New Hampshire with its principal place of business in Massachusetts. (Am. Complaint for Declaratory Judgment and Money Judgment ("Am. Compl.") (Doc. 11) ¶ 9.) Defendant Blue Ridge is a limited liability company organized under the laws of North Carolina, and both of its members are citizens of North Carolina. (Id. ¶ 10.); See Cent. W. Va. Energy Co. v. Mountain State Carbon, LLC, 636 F.3d 101, 103 (4th Cir. 2011) ("For purposes of diversity jurisdiction, the citizenship of a limited liability company ... is determined by the citizenship of all of its members.").

2. The Insurance Policy

Hanover insured Blue Ridge under insurance policy no. LH6 A7180504 02 for the period between August 30, 2017, and August 30, 2018 (the "Insurance Policy"). (Hanover Insurance Policy (Doc. 11-2) at 1.)

The Insurance Policy provides that it does not apply to claims "arising out of ... unfair or deceptive trade practices, including but not limited to, violations of any local, state or federal consumer protection laws." (Id. at 9.)1

3. The Underlying Lawsuit

On July 16, 2018, Elizabeth McMillan and Tiffany Scott, individually and on behalf of class members defined therein, filed a class action suit in the General Court of Justice for Cumberland County, North Carolina (the "Underlying Lawsuit"). (Doc. 11-1.)

Those plaintiffs allege Blue Ridge engaged in practices such as charging tenants unlawful fees, attempting to collect on outstanding balances without going through the required procedures, and refusing to review whether any fees were improperly assessed. (Id. ¶¶ 28–60.) They allege Blue Ridge violated the North Carolina Residential Rental Agreements Act, and the North Carolina Debt Collection Act.2 (Id. ¶¶ 65–98.) Those plaintiffs sought an injunction and declaratory judgment, as well as money damages. (Id. at 28.)

Blue Ridge requested coverage from Hanover for the Underlying Lawsuit, and Hanover defended Blue Ridge subject to a reservation of rights. (Am. Compl. (Doc. 11) ¶ 33; Docs. 59-2, 59-5.) A separate insurance company, Seneca Insurance Company, took over Blue Ridge's defense on July 19, 2019. (Doc. 53-1 at 2–3.) Indeed, it appears Seneca provides primary coverage for Defendant, (Doc. 53-2 at 104), whereas Hanover's coverage was surplus, (Doc. 11-2 at 12). At this time, Hanover is no longer defending Defendant.

B. Procedural Background

On December 13, 2018, Hanover filed a declaratory action in this court asking this court to declare that Hanover has no duty to defend or indemnify Blue Ridge in connection with the Underlying Lawsuit, and that Blue Ridge is obligated to reimburse Hanover for all claim expenses Hanover has paid on behalf of Blue Ridge in connection with the Underlying Lawsuit. (Am. Compl. (Doc. 11) ¶ 39.) Hanover filed a Motion for Partial Judgment on the Pleadings Pursuant to Fed. R. Civ. P. 12(c), (Doc. 24), which this court denied as moot on January 9, 2020. (Minute Entry 01/09/2020.) Hanover filed a Motion for Partial Summary Judgment pursuant to Fed. R. Civ. P. 56 with respect to its declaratory action on its duty to defend and indemnify Blue Ridge, (Doc. 48), and a supporting brief, (Pl.’s Opening Brief in Supp. of Mot. for Partial Summ. J. ("Pl.’s Br.") (Doc. 49)). Blue Ridge responded, (Doc. 58), and Hanover replied, (Doc. 60).

Blue Ridge cross-filed a motion for partial summary judgment on Hanover's duty to defend, (Doc. 51), and a motion to stay or dismiss Hanover's duty to indemnify claim, (Doc. 52), and a brief in support of both motions, (Def.’s Br. (Doc. 54)). Hanover responded, (Pl.’s Resp. (Doc. 59)), and Blue Ridge replied, (Def.’s Resp. (Doc. 61)).

II. STANDARD OF REVIEW

Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). This court's summary judgment inquiry is whether the evidence "is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party bears the initial burden of demonstrating "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp., 477 U.S. at 325, 106 S.Ct. 2548. If the "moving party discharges its burden ..., the nonmoving party must come forward with specific facts showing that there is a genuine issue for trial." McLean v. Patten Cmtys., Inc., 332 F.3d 714, 718-19 (4th Cir. 2003) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). Summary judgment should be granted "unless a reasonable jury could return a verdict in favor of the nonmovant party on the evidence presented." McLean, 332 F.3d at 719 (citing Liberty Lobby, 477 U.S. at 247–48, 106 S.Ct. 2505 ).

When facing cross-motions for summary judgement, this court reviews "each motion separately on its own merits to determine whether either of the parties deserves judgment as a matter of law." Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (citations and internal quotation marks omitted). "When considering each individual motion, the court must take care to resolve all factual disputes and any competing, rational inferences in the light most favorable to the party opposing that motion." Id. (citation and internal quotation marks omitted).

Hanover and Blue Ridge seem to agree that North Carolina law governs the Insurance Policy.3 (Compare Pl.’s Br. (Doc. 25) at 15 n.2, with Def.’s Resp. (Doc. 28) at 6, 15.) The court will therefore apply North Carolina law in this analysis.

III. ANALYSIS

Because Defendant's motions present dispositive jurisdictional issues, the court will address those first.

A. Defendant's Motion for Summary Judgment on Hanover's Duty to Defend

Defendant Blue Ridge moves for partial summary judgment on Hanover's duty to defend claims. (Doc. 51.) Blue Ridge raises two arguments: (1) that Hanover's duty to defend claims are moot because Seneca has taken over Blue Ridge's defense; and (2) that Hanover has no right to seek reimbursement of any expenses associated with its defense of Blue Ridge. (Def.’s Br. (Doc. 54) at 9, 12.) If Hanover were to prevail on its duty to defend claim, none of the underlying claims would be covered. (See Pl.’s Br. (Doc. 49) at 17–18.)

The court will first address Defendant's argument that Hanover may not seek reimbursement of defense costs regardless of its defense duties, and then will address Defendant's argument that Plaintiff's duty to defend claims are moot.

1. Right to Seek Reimbursement

Blue Ridge argues that Hanover may not seek reimbursement of defense costs regardless of whether it had a duty to defend. (Def.’s Br. (Doc. 54) at 12.) It argues that there is no provision in the Insurance Policy that would allow Hanover to recover those costs. (Id. ) Defendant further argues that Fourth Circuit precedent bars reimbursement of defense costs regardless of whether the insurance company had a duty to defend or not. (Id. )

There is no provision in the Insurance Policy providing for recoupment of defense costs. But Plaintiff's Reservation of Rights Letter plainly states that "Hanover specifically reserves its right to seek reimbursement for any uncovered defense and loss payments made by Hanover on this claim." (Doc. 59-2 at 7.)

Hanover argues that Blue Ridge will be unjustly enriched if Hanover is not permitted to recoup its expenditures advanced for claims it had no duty to defend. (Pl.’s Resp. (Doc. 59) at 12.) Hanover also argues that prohibiting the recoupment defense costs here would undermine public policy, because such an outcome would encourage insurers to deny coverage rather than defending and paying defense costs until a determination of the duty to defend is made. (Id. at 15.)

There are no North Carolina state court cases on point, therefore, this court must predict how the Supreme Court of North Carolina would rule on this issue. See Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 369 (4th Cir. 2005). In doing so, the court must look first to opinions of the Supreme Court of North Carolina. See Stahle v. CTS Corp., 817 F.3d 96, 100 (4th Cir. 2016). If there are no governing opinions from that court, this court may consider the opinions of North Carolina Court of Appeals, treatises, and "the practices of other states." Twin City Fire Ins., 433 F.3d at 369 (quotation and citation omitted). In doing so, this court "should not create or expand a [s]tate's public policy." Time Warner Entm't-Advance/Newhouse P'ship v. Carteret-Craven Elec. Membership Corp., 506 F.3d 304,...

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