Valley Forge Ins. Co. v. Iron

Decision Date04 January 2017
Docket NumberCause No. 1:14-cv-6 RLM-SLC
PartiesVALLEY FORGE INSURANCE COMPANY, Plaintiff, v. HARTFORD IRON & METAL, INC., et al., Defendants.
CourtU.S. District Court — Northern District of Indiana
OPINION AND ORDER

Hartford Iron doesn't like the way Valley Forge has performed on its contract. After three motions to dismiss, numerous excess parties and numerous excess claims, what remains of Hartford Iron's counterclaim is an alleged breach of contract with a bad faith component. Everything else has been dismissed.

I. BACKGROUND

No detailed factual summary is needed. In June 2016 [Doc. No. 469], the court dismissed Hartford Iron's third-party claims against Resolute Management Inc., which Valley Forge hired to act as a third-party claims administrator. In August 2016 [Doc. No. 504], the court dismissed Hartford Iron's third party claims against fifteen other entities as well as its counterclaims against Valley Forge. The court didn't grant leave to amend as against the third parties. Hartford Iron came back with a second amended counterclaim against Valley Forge, which Valley Forge now moves to dismiss.

In its second amended counterclaim, Hartford Iron alleges that the Indiana Department of Environmental Management requires costly excavation and off-site disposal to remediate the contaminated soil, and that this process has barely begun and will take years to complete. Through the settlement agreements, Valley Forge agreed that it's responsible for the costs of enabling Hartford Iron to operate its business during the remediation. In the Second Settlement Agreement, Valley Forge agreed, "effective immediately," to take responsibility for "prevention of illegal stormwater discharges" in the future. Hartford Iron alleges that Valley Forge violated this duty, and that instead of fixing the problem, it sued and blamed Hartford Iron.

Hartford Iron alleges that Valley Forge continues to operate with a conflict of interest despite the court's December 2015 order [Doc. No. 298] requiring policies that disable the conflict. Valley Forge allegedly insists on managing and controlling the response by using the same lawyers and managers who are involved in the litigation against Hartford Iron.

Hartford Iron's first claim against Valley Forge is for breach of contract, which it alleges has been ongoing since December 2012. The relevant contracts include the settlement agreements, the insurance policies, and the Master Services Agreement between Valley Forge and August Mack, environmental consultant, to which Hartford Iron alleges it's an intended third party beneficiary.

In support of the breach of contract claim, Hartford Iron alleges that Valley Forge violated its duty under the Second Settlement Agreement to"defend Hartford Iron against the EPA and IDEM claims" without conflict of interest. Valley Forge allegedly violated this duty by sharing information amongst defense, claims management, and litigation personnel; withholding information from Hartford Iron related to the defense; refusing to pay Hartford Iron's chosen counsel since December 31, 2013; insisting on appointment of Jamie Dameron as defense counsel and obstructing her when her recommendations conflicted with those of Valley Forge; submitting regulatory filings and negotiating with IDEM in ways that contradicted defense counsel; and using litigation-tainted attorneys and staff to control the work of August Mack.

In addition, Hartford Iron alleges that Valley Forge:

• violated its duty "to supervise the environmental consultant;"
• violated its duty "to handle negotiations with the agencies;"
• violated its duty to seek agency approval of remediation steps;
• violated its duty to "defend and indemnify Hartford Iron without reservation of rights;"
• violated a duty of good faith;
• violated a duty to seek approval of the most cost-effective remediation plan that minimizes business disruption, and a duty to cooperate with Hartford Iron to minimize business disruption;
• made false and misleading representations, and deceived Hartford Iron;
• violated a duty to carry out the Remediation Work Plan approved by IDEM and the EPA;• violated a duty to prevent discharges by disposing of PCB-contaminated waste in unauthorized landfills under Hartford Iron's name, using Mack to create an illegal and unauthorized storage area for waste drums on the Hartford Iron site, and altering drum labels without authorization;
• violated a duty to provide advance notice to Hartford Iron regarding work to be conducted by Mack;
• violated a duty to be responsible for investigation of past contamination and remediation;
• through Mack, collected "biased samples" of contaminated stormwater;
• through Mack, operated a management system that had to be reconfigured at least a dozen times, violated the IDEM permit, and spilled diesel fuel;
• obstructed construction of the Keramida system since June 13 even though it knows that remediation requires a retention basin and acquisition of neighboring property to install it; and
• caused millions of dollars of additional costs and liabilities.

For all these reasons, Hartford Iron believes it's entitled to damages and a declaration of rights in its favor under 28 U.S.C. § 2201.

Hartford Iron's second count is that it has the right to a good faith, contemporaneous accounting identifying categories of costs that Valley Forge has paid. This accounting, Hartford Iron says, should be conducted under supervision of a special master or independent auditors.

Hartford Iron's third count is for tort claims of negligence, nuisance, and trespass. Hartford Iron alleges that Valley Forge wrongfully took control of land through Mack. Valley Forge created and maintained as a nuisance a storage area for waste drums, a tank farm, open trenches that resulted in groundwater contamination, and a gravel pit, and openly dumped wastes, flooding streets and adjacent yards with untreated PCB-contaminated stormwater, and causing ruts and other damage to land from vehicles, and closure of public streets.

Hartford Iron's fourth count is for a declaratory judgment pursuant to 28 U.S.C. § 2201. Hartford Iron asks the court, first, to declare that Valley Forge created a conflict of interest when it sued Hartford Iron. Second, that Hartford Iron has the legal right to control the defense and remediation. And third, that the conflict wasn't remedied when Valley Forge assigned claims director Jerry Alpine to manage projects. This is because Mr. Alpine works with David Paige. David Paige directed Mr. Alpine to review Valley Forge's litigation filings and Mr. Paige is supervised by Valley Forge's litigation counsel, Valerie Rodriguez.

I. STANDARD OF REVIEW

Valley Forge moves to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). A complaint need only contain a short and plain statement showing that the plaintiff is entitled to relief. See EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007). When ruling on a Rule 12(b)(6) motion, the court must accept as true all well-pleaded factual allegations in the complaint and draw all reasonable inferences in favorof the non-moving party. See Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009). Facts included in documents that are attached to the complaint or incorporated to it by reference may defeat contrary allegations in the complaint. See Wright v. Assoc. Ins. Cos., Inc., 29 F.3d 1244, 1248 (7th Cir. 1994).

A complaint must contain sufficient factual allegations to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Adams v. City of Indianapolis, 742 F.3d 720, 728 (7th Cir. 2014) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). "Specific facts are not necessary; the statement need only give the defendant fair notice of what . . . the claim is and the grounds upon which it rests." Erickson v. Pardus, 551 U.S. 89, 93 (2007). Nonetheless, "bare legal conclusions" need not be accepted as true even if alleged as facts, and a "formulaic recitation of a cause of action's elements will not do." Twombly, 550 U.S. at 547.

II. DISCUSSION

Hartford Iron states a plausible claim that Valley Forge breached the Second Settlement Agreement, and that it did so in bad faith. No other parts of the second amended counterclaim state a plausible claim. The case is well intodiscovery, and Hartford Iron has had ample opportunity to plead, so the court won't grant Hartford Iron leave to amend its counterclaim yet again.

A. Duty of Good Faith and Attorney's Fees

Hartford Iron alleges that Valley Forge violated the duty of good faith inherent in its duty to defend and indemnify Hartford Iron without reservation of rights when Valley Forge "deceiv[ed] Hartford Iron" and "caus[ed] tens of millions of dollars of additional costs and liabilities for investigation, containment and prevention, legal and other defense, eventual remediation, [and] new regulatory labilities."

"Indiana law recognizes an implied duty of good faith in all insurance contracts requiring that an insurer will act in good faith with its insured. This duty results from the unique nature of the insured/insurer relationship, which may be at varying times arm's-length, fiduciary, and/or adversarial." Allen v. Great Am. Reserve Ins. Co., 766 N.E.2d 1157, 1162 (Ind. 2002) (internal quotations omitted). "The obligation of good faith and fair dealing with respect to the discharge of the insurer's contractual obligation includes the obligation to refrain from (1) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in making payment; (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an insured into a settlement of his claim." Erie Ins. Co. v....

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