State ex rel. State Auto Prop. Ins. Cos. v. Stucky

• Citation: 806 S.E.2d 160
• Decision Date: 10 October 2017
• Docket Number: No. 17-0257,17-0257
• Court: Supreme Court of West Virginia
• Parties: STATE of West Virginia EX REL. STATE AUTO PROPERTY INSURANCE COMPANIES d/b/a State Auto Property and Casualty Insurance Company, Petitioner v. The Honorable James C. STUCKY, Judge of the Circuit Court of Kanawha County, West Virginia; a CMD Plus, Inc. Respondent

806 S.E.2d 160

STATE of West Virginia EX REL. STATE AUTO PROPERTY INSURANCE COMPANIES d/b/a State Auto Property and Casualty Insurance Company, Petitioner

v.The Honorable James C. STUCKY, Judge of the Circuit Court of Kanawha County, West Virginia; a CMD Plus, Inc. Respondent

No. 17-0257

Supreme Court of Appeals of West Virginia.

Submitted: September 19, 2017

Filed: October 10, 2017

Trevor K. Taylor, Esq., William P. Margelis, Esq., Taylor Law Office, Morgantown, West Virginia, Counsel for the Petitioner

Charles M. Johnstone, II, Esq., David A. Dobson, Esq., Johnstone & Gabhart, LLP Charleston, West Virginia, Counsel for the Respondent, CMD Plus, Inc.

Justice Ketchum :

This original prohibition proceeding concerns a liability insurance policy. It is a commercial general liability policy issued by the petitioner, State Auto Property Insurance Companies ("State Auto"), to its insured, respondent CMD Plus, Inc. ("CMD").

CMD, a residential construction company, contracted to build a home for Chandrakant N. and Kimberly S. Shah in Charleston, West Virginia. The construction activities caused ground slippage resulting in damage to the house and property of the adjacent, downhill homeowners, Barry G. Evans and Ann M. Evans ("Plaintiffs"). The plaintiffs filed an action in the Circuit Court of Kanawha County against the Shahs and CMD seeking recovery for their damage.

CMD filed a third-party complaint against its insurer State Auto alleging that State Auto delayed investigating the plaintiffs' claim, settling the plaintiffs' lawsuit, and indemnifying CMD. CMD asserted that, as a result, State Auto committed common law bad faith, violations of the West Virginia Unfair Trade Practices Act, and breach of contract. State Auto's efforts to obtain a dismissal of CMD's third-party complaint were unsuccessful. In the current petition for a writ of prohibition filed in this Court, State Auto challenges the circuit court's March 2, 2017, denial of State Auto's motion for summary judgment. State Auto contends there is no genuine issue of material fact and that it is entitled to a dismissal of CMD's third-party complaint as a matter of law.

The record, including the exhibits filed in support of State Auto's motion for summary judgment, reveals that State Auto defended and indemnified its insured, CMD, throughout the lawsuit as required by the commercial general liability policy. We note that, while the policy was purchased to provide liability coverage for damage to property sustained by third parties, such as the plaintiffs, the terms of the policy provided no coverage to CMD for damage to its own property.

This Court concludes that relief in prohibition is warranted and that State Auto is entitled to a dismissal of CMD's third-party complaint as a matter of law.

I. The Underlying Action

CMD contracted to build a custom home on a parcel in Charleston, West Virginia, owned by the Shahs. The adjacent, downhill property owners were the plaintiffs. Construction activities on the Shah parcel resulted in surface water, storm water, mud and debris inundating and damaging the plaintiffs' house and property.

On April 13, 2011, the plaintiffs filed a lawsuit in the Circuit Court of Kanawha County against the Shahs and CMD. Asserting causes of action for nuisance, trespass and negligence, the plaintiffs sought compensatory damages as well as equitable relief to prevent further interference with the use and enjoyment of their property.¹

II. The Third-Party Complaint Against State Auto

CMD was insured for the damage to the plaintiffs' property under a commercial general liability policy issued by State Auto which provided coverage up to the policy limit of $1,000,000. CMD promptly notified State Auto of the damage to the plaintiffs' property, and CMD asserts that, at that time, the damage could have been remedied quickly and inexpensively. State Auto advised CMD that it would handle the claim. CMD states that State Auto then conducted a series of inspections and investigations, thereby delaying a potential settlement of the plaintiffs' lawsuit, increasing the amount of the plaintiffs' property damage, and resulting in the lawsuit filed against CMD by the plaintiffs.

CMD filed a third-party complaint against State Auto on March 20, 2012. The third-party complaint contained three Counts. Count I alleged that State Auto committed common law bad faith through its delay in resolving the property damage claim of the plaintiffs and through its failure to protect CMD from litigation. Count II alleged, for similar reasons, that State Auto violated the West Virginia Unfair Trade Practices Act, W.Va. Code, 33-11-1 [1974], et seq.² Count III alleged a breach of State Auto's contractual obligation to CMD by failing to make insurance proceeds available where liability regarding the plaintiffs' claim was clear.

State Auto filed a motion to dismiss CMD's third-party complaint on the ground that CMD lacked standing to assert common law and statutory bad faith or unfair claims settlement practices regarding how State Auto handled the plaintiffs' lawsuit. According to State Auto, its only obligation to its insured, CMD, was to defend the lawsuit and indemnify CMD for any meritorious claims asserted by the plaintiffs. State Auto contends that it defended CMD and fully settled the plaintiffs' claims. State Auto alleged that CMD's breach of contract theory fails for the same reason, i.e., CMD lacks standing to assert any bad faith claim the plaintiffs may have had regarding how State Auto handled the lawsuit.³

On September 25, 2012, State Auto's motion to dismiss was denied in part. The order entered by the circuit court stated that the motion was denied "except that the Court will not allow the Third-Party Plaintiff CMD Plus, Inc. to assert claims that, in actuality, are claims of the Plaintiffs, Barry G. Evans and Ann M. Evans. To the extent any such claims have been asserted, those claims are dismissed."

Thereafter, the plaintiffs' lawsuit fully settled resulting in the plaintiffs receiving $325,000 paid by State Auto. The plaintiffs executed an agreement discharging the Shahs, CMD and State Auto from all claims arising from CMD's construction activities.

State Auto then filed a renewed motion to dismiss CMD's third-party complaint on the ground that State Auto met its obligations under the commercial general liability policy to defend and indemnify CMD. State Auto asserted that

the duty to indemnify has not been breached because litigation in the underlying matter was resolved by settlement. Pursuant to the terms of that settlement, State Auto paid to resolve all claims asserted by the [plaintiffs] against CMD while securing a complete release of CMD of and from any and all liability relating to the allegations contained in the [plaintiffs'] Complaint. In fact, State Auto has secured a release to make sure that CMD cannot be sued again in the future. Under these circumstances, no judgment was entered against CMD and no settlement was negotiated wherein payment was demanded of CMD. Accordingly, as a matter of law, CMD cannot set forth any set of facts upon which it may base a claim for bad faith breach of the insurance contract against State Auto.

On November 10, 2015, the circuit court denied State Auto's renewed motion to dismiss. In the order, the circuit court simply restated each Count of CMD's third-party complaint and concluded that the allegations were sufficient to allow the matter to go forward. State Auto sought relief from the November 10, 2015, order by filing a petition for a writ of prohibition in this Court.

In State ex rel. State Auto Property Insurance Companies v. Stucky, 2016 WL 3410352 (W.Va. 2016), a Memorandum Decision issued on June 14, 2016, this Court determined that under Rule 12(b)(6) of the West Virginia Rules of Civil Procedure our analysis of State Auto's requested dismissal was limited to the allegations within the four corners of CMD's third-party complaint. The settlement of the lawsuit and other matters of evidence were not to be considered. This Court concluded that CMD's allegations of common law and statutory bad faith and breach of contract were sufficiently pled to withstand State Auto's renewed motion to dismiss. Therefore, relief in prohibition was denied with the caveat that State Auto "could file a motion for summary judgment after the completion of discovery in order to obtain relief." (emphasis added)⁴

III. State Auto's Motion for Summary Judgment

The parties conducted discovery following the denial of relief in prohibition. In January 2017 State Auto filed a motion for summary judgment. State Auto asserted that there was no question of fact that it had provided CMD with a defense in the plaintiffs' lawsuit and that a settlement and release of the plaintiffs' damage claim was secured at no cost to CMD and without the entry of an adverse judgment. CMD filed a response to the motion, asserting that summary judgment on the third-party complaint was precluded by questions of fact. A number of exhibits were filed by the parties in support of their respective positions.

On March 2, 2017, the circuit court denied State Auto's motion for summary judgment on the basis of unresolved questions of fact regarding CMD's allegations of common law and statutory bad faith and breach of contract. Noting CMD's assertion that State Auto's dilatory handling of the plaintiffs' damage claim resulted in the filing of the lawsuit, the circuit court concluded that CMD had a first-party claim under West Virginia law "in that CMD alleged that its insurer, State Auto, failed to use good faith in settling a claim by someone the insured allegedly harmed or injured."

In the current petition for a writ of prohibition, State Auto seeks relief from the circuit court's March 2, 2017, order. State Auto contends that it performed its obligations under the commercial general liability policy and that, because there are no genuine issues of material fact, CMD's third-party...