Soyoola v. Oceanus Ins. Co.

• Decision Date: 11 December 2013
• Docket Number: Civil Action No. 2:13–cv–08907.
• Court: U.S. District Court — Southern District of West Virginia
• Parties: Emmanuel O. SOYOOLA, Plaintiff, v. OCEANUS INSURANCE COMPANY, et al., Defendants.

986 F.Supp.2d 695

Emmanuel O. SOYOOLA, Plaintiff,

v.OCEANUS INSURANCE COMPANY, et al., Defendants.

Civil Action No. 2:13–cv–08907.

United States District Court, S.D. West Virginia.

Dec. 11, 2013.

Preempted

West's Ann.W.Va.Code, 33–20D–3.

Shawn P. George, George & Lorensen, Charleston, WV, for Plaintiff.

Barry S. Pollack, Pollack Solomon Duffy, Boston, MA, Melanie Morgan Norris, Phillip T. Glyptis, Steptoe & Johnson, Wheeling, WV, Lee Murray Hall, Jenkins Fenstermaker, Huntington, WV, for Defendants.

ORDER

JOSEPH R. GOODWIN, District Judge.

Pending before the court is Emmanuel O. Soyoola's Motion for Leave to File Amended Complaint [Docket 33]. This motion is ripe for review. For the reasons stated below, the motion [Docket 33] is GRANTED in part and DENIED in part.

I. Background

This case arises out of an insurance coverage dispute between Oceanus Insurance Company (“Oceanus”), the insurer, and Dr. Emmanuel O. Soyoola, the insured. Oceanus contends the Liability Risk Retention Act of 1986 preempts Dr. Soyoola's state law claims. Dr. Soyoola responds that his claims are not preempted. However, even if his claims fall within the scope of the Liability Risk Retention Act, Dr. Soyoola argues they fall within its exceptions.

A. Factual Background

Dr. Soyoola is a citizen of Georgia. (Compl. [Docket 1–2], ¶ 1). He practiced as an obstetrician and gynecologist in Logan County, West Virginia. ( Id. ¶ 2). Oceanus is a risk retention insurance group.¹ Oceanus is chartered in South Carolina, where it issued Dr. Soyoola a “claims made” ² medical malpractice insurancepolicy (“the Policy”). ( Id. ¶¶ 8–9). The Policy covered claims arising from Dr. Soyoola's practice in West Virginia. ( Id. ¶ 9). The Policy had a limit of $1 million per claim. ( Id.). In August 2009, Oceanus declined to renew the Policy. ( Id. ¶ 10). Instead, Oceanus issued Dr. Soyoola tail coverage for $250,000 (“the Tail Policy”). ( Id. ¶ 13). According to Dr. Soyoola, Oceanus failed to offer him $1 million in tail coverage, with amortized premiums, as required by West Virginia Code § 33–20D–3(a). ( See id. ¶ 10). In addition, Oceanus did not tell Dr. Soyoola that if he took less than $1 million in tail coverage, he could not benefit from West Virginia's statutory caps on non-economic damages. ( Id. ¶ 12).

B. Procedural Background

Currently, Dr. Soyoola is being sued for medical malpractice (“McNeely action”). ( Id. ¶ 15). After Oceanus received notice of the action, it provided defense to Dr. Soyoola. ( Id.). However, Oceanus told Dr. Soyoola that he only had $250,000 in coverage for the claim. ( Id.). Dr. Soyoola requested that Oceanus agree to resolve the claim against Dr. Soyoola. ( Id. ¶ 17). However, Oceanus refused a $1 million settlement offer from the plaintiff. ( Id.).

Due to Oceanus's alleged failure to comply with West Virginia law, Dr. Soyoola sued Oceanus in West Virginia state court. ( See generally id.). Dr. Soyoola alleged three claims against Oceanus: (1) breach of contract arising from Oceanus's failure to comply with West Virginia Code § 33–20D–3; (2) declaratory judgment for the full amount required under West Virginia Code § 33–20D–3; and (3) misleading representations under the Unfair Trade Practices Act, West Virginia Code § 33–11–1. ( Id. ¶¶ 20–28).

In the instant motion, Dr. Soyoola seeks to add several factual allegations in his proposed complaint. First, the proposed complaint states that, before the Policy expired, Dr. Soyoola notified Oceanus of an occurrence, which resulted in the McNeely action. (Am. Compl. [Docket 33–2], ¶¶ 10–11). Second, the proposed complaint alleges Oceanus was an unauthorized insurer when it issued the Policy to Dr. Soyoola in August 2004. ( Id. ¶ 6). Finally, the proposed complaint asserts that Oceanus's license application, registration, and other sworn statements indicated that Oceanus agreed to comply with all applicable West Virginia insurance laws. ( Id. ¶¶ 13–15). In addition to the factual allegations, the proposed complaint alleges three additional counts: Count IV (false or deceptive practices), Count V (fraud), and Count VI (punitive damages). ( Id. ¶¶ 27–54). The complaint also alleges a breach of contract claim arising from Oceanus's failure to provide coverage for the McNeely action under the Policy. ( Id. ¶ 19).

II. Legal Standard

Rule 15(a)(2) of the Federal Rules of Civil Procedure provides that, after time for amendment as a matter of course has passed, leave of court must be obtained to amend a pleading. The rule provides that a court should freely give leave to amend “when justice so requires.” Fed.R.Civ.P. 15(a)(2). “The law is well settled that leave to amend a pleading should be denied only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would be futile.... Delay alone is an insufficient reason to deny leave to amend. Rather, the delay must be accompanied by prejudice, bad faith, or futility.” Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th Cir.1999) (internal citations and quotation marks omitted). An amendment is futile if it would fail to survive a motion to dismiss. See Perkins v. United States, 55 F.3d 910, 917 (4th Cir.1995).

III. Discussion

The determinative issue in this case is whether the Liability Risk Retention Act (“LRRA”) preempts Dr. Soyoola's claims arising from Oceanus's violation of West Virginia Code § 33–20D–3. For the reasons stated below, I FIND the LRRA preempts § 33–20D–3. Claims premised on a violation of § 33–20D–3 must fail because this statute is inapplicable to Oceanus. Therefore, I deny amendment to add those claims. However, I FIND the LRRA does not preempt Dr. Soyoola's breach of contract, fraud, and false and deceptive practices claims arising under the Policy. I permit amendment to add those claims.

A. Federal Preemption Law

Federal preemption originates from the Constitution's Supremacy Clause. SeeU.S. Const. art. VI, cl. 2.³ In addressing a preemption issue, the court's first task is to determine whether Congress intended to preempt. See California Fed. Savings & Loan Ass'n, 479 U.S. 272, 281, 107 S.Ct. 683, 93 L.Ed.2d 613 (1987). Intent to preempt can manifest itself in three forms: field preemption, express preemption, and conflict preemption. See H & R Block E. Enters. v. Raskin, 591 F.3d 718, 722 (4th Cir.2010). Field preemption occurs when the “federal scheme of regulation of a defined field is so pervasive that Congress must have intended to leave no room for the states to supplement it[.]” City of Charleston, S.C. v. A Fisherman's Best Inc., 310 F.3d 155, 169 (4th Cir.2002). Express preemption arises when “Congress expressly declares its intent to preempt state law.” Pinney v. Nokia, Inc., 402 F.3d 430, 453 (4th Cir.2005). Finally, conflict preemption occurs when “state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Hillsborough Cnty., Fla. v. Automated Med. Labs., Inc., 471 U.S. 707, 713, 105 S.Ct. 2371, 85 L.Ed.2d 714 (1985) (internal quotation marks omitted). Conflict preemption can also arise when “compliance with both federal and state regulations is a physical impossibility[.]” Id.

Once Congress's intent to preempt is determined, the focus turns to the scope of that preemption. See Duvall v. Bristol–Myers–Squibb Co., 103 F.3d 324, 328 (4th Cir.1996). Two presumptions guide this inquiry. See id. First, “ ‘the purpose of Congress is the ultimate touchstone’ in every preemption case.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996) (quoting Retail Clerks v. Schermerhorn, 375 U.S. 96, 103, 84 S.Ct. 219, 11 L.Ed.2d 179 (1963)). Second, a court starts “with the basic assumption that Congress did not intend to displace state law.” Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 68 L.Ed.2d 576 (1981). “This presumption is strongest when Congress legislates ‘in a field which the States have traditionally occupied.’ ” S. Blasting Servs., Inc. v. Wilkes Cnty., N.C., 288 F.3d 584, 590 (4th Cir.2002) (quoting Medtronic, Inc., 518 U.S. at 485, 116 S.Ct. 2240).

Insurance is one of those traditional areas. See generally FMC Corp. v. Holliday, 498 U.S. 52, 53, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990). To preserve states' traditional authority in this area, Congress enacted the McCarran–Ferguson Act, which states that a federal law must explicitly indicate it is preempting state insurance law. See15 U.S.C. § 1012 (“No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance ....” (emphasis added)). For a state insurance law to be valid despite a relevant federal scheme, “(1) the state law in question must be enacted for the purpose of regulating the business of insurance; (2) the federal law must not be specifically related to the business of insurance; and (3) the federal law must invalidate, impair or supersede the state law in question.” Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 230–31 (4th Cir.2004).

B. The Liability Risk Retention Act of 1986

In 1981, to address rising premiums for products liability insurance, Congress enacted the Products Liability Risk Retention Act (“PLRRA”). H.R. Rep. 97–190, at 4, reprinted in 1981 U.S.C.C.A.N. 1432, 1432 (hereinafter “H.R. Rep. 97–190”). In passing this legislation, Congress recognized that risk retention groups allowed “product manufacturers to purchase insurance on a group basis at more favorable rates or to self-insure through insurance cooperatives called ‘risk retention groups.’ ” Id.

However, risk retention groups faced difficulties in providing insurance nationwide. Normally, an insurer must obtain a license and comply with the regulations of every...