R.L. Vallee v. American Intern. Specialty Lines
| Decision Date | 17 May 2006 |
| Docket Number | No. 2:05 CV 131.,2:05 CV 131. |
| Parties | R.L. VALLEE, INC., Plaintiff, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — District of Vermont |
Matthew S. Borick Downs, Rachlin, Martin PLLC, Burlington, VT, and Bruce Calvert Palmer, St. Johnsbury, VT, for Plaintiff.
Julie Selesnick, Richard W. Bryan, Jackson & Campbell, P.C., Washington, DC, and Peter B. Joslin, Theriault & Joslin, Montpelier, VT, for Defendant.
The Magistrate Judge's Report and Recommendation ("R & R") was filed March 16, 2006. (Paper 33.) A Ruling on Motion for Reconsideration ("Ruling") was filed April 14, 2006. (Paper 38.) After de novo review and over objection, the Report and Recommendation and Ruling are both AFFIRMED, APPROVED and ADOPTED. See 28 U.S.C. § 636(b)(1).
The Ruling has addressed the defendant's concerns in relation to the Court's inquiry on a Rule 12(b)(6) motion. Furthermore, Greene v. Stevens Gas Serv., 177 Vt. 90, 858 A.2d 238 (2004) makes clear that a breach of insurance contract claim cannot be recast to support a claim under Vermont's Consumer Fraud Act. See id. at 97, 858 A.2d 238 ().
Defendant's motion to dismiss plaintiffs Vermont Consumer Fraud Act claim (Count Five of Complaint) is GRANTED. Defendant's motion to dismiss the remaining claims is DENIED.
This matter is returned to the Magistrate Judge for further proceedings.
SO ORDERED.
MAGISTRATE JUDGE'S REPORT & RECOMMENDATION
(Document 7)
Plaintiff R.L. Vallee, Inc. ("Vallee"), for itself and as assignee of Maclntyre Fuels, Inc. ("MFI"), filed this diversity action against American International Specialty Lines Insurance Company ("AISLIC"). Vallee alleges that AISLIC breached an insurance policy with MFI by denying coverage and failing to offer a defense to MFI in a state court action alleging pollution damage. The case is currently before this Court on AISLIC's motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6).
For the following reasons, I recommend that AISLIC's motion be GRANTED in part and DENIED in part.
For the purposes of this motion, the following facts are taken as true.
MFI is a Vermont corporation whose majority stockholders are Roch and Joy MacIntyre ("MacIntyres"). (Doc. 1-3, ¶ 6). MFI leased and operated a gasoline station in New Haven, Vermont on property owned by the MacIntyres. (Id. at ¶ 9). In 1992, MFI removed four underground gasoline storage tanks ("UST") and replaced them with above ground storage tanks ("AST"). (Doc. 1, ¶¶ 13, 15). MFI also installed new underground piping running from the ASTs to the pump islands. (Id. at ¶ 15). Griffin International, Inc. ("Griffin"), an environmental consultant retained by MFI, reported that there had been a petroleum leak from the USTs that required removing 110 cubic yards of contaminated soil. (Id. at ¶ 14). Even after the removal, there was residual contamination at the site. (Id. at ¶ 17). From 1992 through 1995, MFI and Griffin continued to work to remedy the UST contamination. (Id. at ¶ 18).
On June 30, 1995, MFI and the MacIntyres sold the station with all improvements to Vallee. (Id. at ¶ 19). Even after the sale, MFI was responsible for monitoring, conducting investigations and removing residual UST contamination to the satisfaction of the Vermont Department of Environmental Conservation, Waste Management Division, Site Management Section ("SMS"). (Id. at ¶ 20).
MFI is the named insured on a Contractor's Pollution Liability Policy ("Policy") issued by AISLIC. (Id. at ¶ 6). The Policy was in effect from April 30, 1998 until April 30, 1999. (Id.)
On August 17, 1998, Vallee pressure tested the AST system and discovered Leaks in the piping. (Id. at ¶ 22). These leaks were repaired on August 19, 1998 but the contamination had already spread into the soils and groundwater of the station as well as the property and groundwater of third parties. (Id. at ¶ 25). According to SMS, MFI was the primary responsible party for the contamination from the AST piping leaks. (Id. at ¶ 27).
"By summer or early fall 2002, MFI ceased operations and turned all material assets over to secured creditors." (Id.) Hence, MFI was "insolvent and thereafter lacked the ability to proceed with additional work at the Site or to satisfy any resulting liabilities." (Id.) By October 2002, MFI "refused to accept further responsibility for clean up at the Site and abandoned further work at the Site." (Id. at ¶ 28). Therefore, SMS then looked to Vallee to complete the remediation of the station. (Id. at ¶ 29).
On November 21, 2002, Vallee sued MFI, Griffin, and the MacIntyres individually in Vermont state court. (Id. at ¶ 32). Vallee sought to recover actual damages and costs for the petroleum contamination and breach of contract, future remediation costs, and an injunction ordering the defendants to prevent and correct any continuing petroleum contamination. (Doc. 1-3, Page 9-10). MFI requested a defense and indemnification from AISLIC. (Doc. 1, ¶ 34). AISLIC's claims representative and handling agent AIG Technical Services, Inc. ("AIG") investigated the claim. (Id. at ¶ 35). On May 15, 2003, AIG denied coverage for the claim. (Id. at ¶ 37; Doc. 1-4, Pages 4-6). AIG denied coverage under the Policy because (1) the gas station was not a "job site", (2) supervising Griffin's work was not a "covered operation" and fell under Exclusion N, and (3) the contamination history had not been reported to AISLIC and fell under Exclusion A. (Doc. 1-4, Pages 4-6).
MFI lacked the resources to defend the suit or to pursue a separate action to secure coverage from AISLIC. (Doc. 1, ¶ 41). Based on its estimate of the past and future costs of remediating the AST and UST contamination, Vallee proposed a $1.5 million settlement. (Id. at ¶ 44-47). On August 5, 2004, MFI forwarded the proposed settlement to AISLIC indicating that it would "finalize a settlement ... only if AISLIC would not acknowledge its responsibilities to MFI and take over the defense ... and pay any damages." (Id. at ¶ 148, 50). On August 17, 2004, AISLIC affirmed its denial of coverage for the claim. (Id. at ¶ 51).
MFI and Vallee agreed to a stipulated judgment and dismissal of all claims against the MacIntyres. (Id. at ¶ 52). As part of the settlement, MFI assigned to Vallee "all insurance rights and proceeds pertinent to the settlement, including rights to defense or indemnity dollars and to all other claims against AISLIC." (Id. at ¶ 53).
On May 16, 2005, Vallee brought this action against AISLIC alleging in seven counts that AISLIC: (1) breached its duty to defend MFI, (2) breached its duty to indemnify MFI, (3) breached its contractual duty of good faith and fair dealing to MFI, (4) breached its fiduciary duty to MFI, (5) violated the Vermont Consumer Fraud Act ("VCFA"), Vt. Stat. Ann. tit. 9, §§ 2451-2480, (6) acted willfully, maliciously and/or with reckless or wanton indifference entitling Vallee to punitive damages, and (7) acted negligently.
AISLIC has moved to dismiss Vallee's complaint under Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction and Fed.R.Civ.P. 12(b)(6) for failure to state a claim. AISLIC argues that this Court lacks jurisdiction because under 28 U.S.C. § 1332(c) there is no diversity. AISLIC further argues that (1) the assignment of MFI's rights to Vallee violated the Policy and is invalid, (2) Vallee cannot maintain a direct action, (3) Vallee's claim is not covered by the Policy, (4) Vallee cannot assert bad faith claims because there is no coverage under the Policy and Vallee is not a party to the Policy, and (5) the VCFA does not apply to insurance transactions.
On a motion to dismiss under either Rule 12(b)(1) or 12(b)(6), the Court reads the plaintiffs complaint with generosity. See Jaghory v. New York State Dept. of Educ., 131 F.3d 326, 329 (2d Cir.1997). Taking the allegations in the complaint as true, the court must construe the complaint in the light most favorable to the plaintiff, and draw all inferences in plaintiffs favor. Id. The complaint must not be dismissed unless "`it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Bolt Elec., Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir.1995) (quoting Walker v. City of New York, 974 F.2d 293, 298 (2d Cir.1992)). Indeed, there is an important "difference between disposing of a case on a 12(b)(6) motion and resolving the case later in the proceedings, for example by summary judgment." Chance v. Armstrong, 143 F.3d 698, 701 (2d Cir.1998). "The issue is not whether a plaintiff is likely to prevail ultimately, but whether the claimant is entitled to offer evidence to support the claims." Id. (citations and internal quotation marks omitted).
Vallee has alleged that this Court has original jurisdiction of this action pursuant to 28 U.S.C. § 1332, which requires diversity of citizenship between the parties and an amount in controversy exceeding $75,000.
According to the diversity statute, "in any direct action against the insurer of a policy or contract of liability insurance to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of the State of which the insured is a citizen." 28 U.S.C. § 1332(c). AISLIC argues that this suit is a direct action and therefore AISLIC must be deemed a citizen of Vermont. AISLIC contends that since its insured MFI is also a citizen of Vermont, this Court lacks diversity jurisdiction.
As used in the statute, a direct action refers to "those cases in which a party suffering injuries or damage for which another is legally responsible is entitled to bring...
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