Westminster Am. Ins. Co. v. Sec. Nat'l Ins. Co.

• Court: U.S. Court of Appeals — Third Circuit
• Writing for the Court: ROTH, Circuit Judge
• Docket Number: 23-2902
• Decision Date: 05 December 2024
• Citation: Westminster Am. Ins. Co. v. Sec. Nat'l Ins. Co., 23-2902 (3rd Cir. Dec 05, 2024)
• Parties: WESTMINSTER AMERICAN INSURANCE CO; WALDY REYES; ARGENIS REYES; ROSALBA MUNOZ, H/W, As Assignees of 4207 Chester Ave, LLC, Appellants v. SECURITY NATIONAL INSURANCE COMPANY

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WESTMINSTER AMERICAN INSURANCE CO; WALDY REYES; ARGENIS REYES; ROSALBA MUNOZ, H/W, As Assignees of 4207 Chester Ave, LLC, Appellants v. SECURITY NATIONAL INSURANCE COMPANY

No. 23-2902

United States Court of Appeals, Third Circuit

December 5, 2024

NOT PRECEDENTIAL

Submitted under Third Circuit L.A.R. 34.1(a) on September 10 2024

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D. C. No. 2-20-cv-02195) District Judge: Honorable John R. Padova

Before: CHAGARES, Chief Judge, ROTH and RENDELL, Circuit Judges

OPINION^[*]

ROTH Circuit Judge Appellants Westminster American Insurance Co., Argenis Reyes, and Rosalba Munoz (the latter two acting as assignees of 4207 Chester Ave, LLC and Waldy Reyes) appeal the District Court's order dismissing their complaint against Security National Insurance Company for failure to state a claim. We will affirm.

I.^[1]

On June 25, 2019, Argenis Reyes and Waldy Reyes were engaging in repair work at 4207 Chester Avenue in West Philadelphia (the Building).^[2] Argenis worked for Altman Management Company, Inc., which managed the Building on behalf of 4207 Chester Ave, LLC (4207 Chester). Waldy worked for AM Marlin Construction, LLC (Marlin), and was brought in to repair a ceiling leak. Argenis and Waldy were attempting to transport debris from the repair work via the Building's fire escape when it detached, injuring both Waldy and Argenis.

4207 Chester was insured by two relevant insurance policies. It was the named insured under a commercial general liability (CGL) policy issued by Westminster American Insurance Co., which had a policy cap of $6 million. It was also a scheduled additional insured under an endorsement to Marlin's CGL policy, issued by Security National Insurance Company (SNIC), which had a policy cap of $1 million. The central provision of that endorsement (the Additional Insured Endorsement) provided that:

Section II - Who is An Insured is amended to include as an insured the person or organization shown in the Schedule [e.g., 4207 Chester], but only to the extent that the person or organization shown in the Schedule is held liable for your [i.e., Marlin's] acts or omissions arising out of your ongoing operations performed for that insured.^[3]

The SNIC Policy required SNIC to defend Marlin, its employees, and (where applicable) 4207 Chester "against any 'suit' seeking damages for 'bodily injury' or 'property damage' to which this insurance applies."^[4] "Suit" is defined as:

[A] civil proceeding in which damages because of "bodily injury," "property damage" or "personal and advertising injury" to which this insurance applies are alleged. "Suit" includes: a. An arbitration proceeding to which such damages are claimed and to which the insured must submit or does submit with our consent; or b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.^[5]

After the accident, Westminster contacted SNIC on December 26, 2019, and demanded it defend and indemnify 4207 Chester "as an additional insured on Marlin's liability policy."^[6] SNIC replied on January 2, 2020, noting it had commenced an investigation and requesting additional information. Westminster replied on January 8, 2020. Westminster's December 26 and January 8 letters both listed Argenis and Waldy as potential claimants, and neither suggested Argenis was pursuing a claim against Waldy or Marlin.^[7]

On January 15, 2020, SNIC informed Westminster that it had identified a potential coverage issue and sought further additional information. Westminster responded to this letter on February 7, 2020. While Westminster's response mentioned that 4207 Chester and Marlin were potentially adverse, it still did not say that Argenis was considering pursing a claim against Waldy or Marlin.

On March 19, 2020, Argenis sent a formal demand letter to 4207 Chester, accusing it of failing to maintain the fire escape and alleging conscious noncompliance with applicable safety regulations. Westminster forwarded this letter (and an accompanying demand package) to SNIC on April 3, 2020, and reiterated its belief that SNIC was obligated to defend and indemnify 4207 Chester. SNIC ultimately provided its formal disclaimer of coverage on May 6, 2020. SNIC asserted that because Marlin had not performed any work on, and was not responsible for, the subject balcony, 4207 Chester did not qualify for coverage as an additional insured. On May 8, 2020, Westminster requested that SNIC participate in a mediation on May 13, 2020 (which other relevant parties were scheduled to attend). Westminster also noted it had initiated a lawsuit against SNIC. SNIC responded that same day, declining to participate in the mediation.

On May 12, 2020, Argenis contacted SNIC and requested that it tender its policy limit. Unlike prior communications, this demand asserted claims against Waldy and Marlin. SNIC responded on May 13, 2020, denying that either Waldy or Marlin had any responsibility for Argenis's injuries and refusing to tender its policy limit.^[8] Subsequently, Waldy contacted SNIC on May 20, 2020, demanding that SNIC assist in settling the claims against him, or he would settle those claims on his own. This letter demanded a response by 5:00 PM on May 22, 2020. SNIC did not respond, but on May 21, 2020, it sent an updated denial of coverage to Westminster regarding 4207 Chester-this time also disclaiming coverage on the basis of the SNIC policy's Employee Liability Exclusion (ELE). Waldy and 4207 Chester subsequently entered into a settlement with Argenis and Munoz, mainly consisting of an assignment of their claims against SNIC.

II

Appellants' Second Amended Complaint (SAC) alleges eight causes of action, including breach of contract, bad faith, breach of covenant of good faith, and request for declaratory judgment. Appellants do not contest the District Court's determination that each claim ultimately hinges on one of two allegations: (1) that SNIC breached its obligation to defend 4207 Chester, and (2) that SNIC breached its obligation to defend Waldy.

SNIC initially moved to dismiss the SAC on July 27, 2020. On August 16, 2021, following extensive briefing and oral argument, the District Court ordered the SAC dismissed in full. While SNIC raised multiple arguments for dismissal, the District Court's opinion focused solely on the ELE, which it determined was a sufficient basis for dismissal. On appeal, we determined that the ELE was reasonably susceptible to an interpretation which did not bar Appellants' claims, and, as such, was required to be construed in their favor as the insured.^[9] While noting SNIC had raised alternative bases for dismissal, we declined to consider them in the first instance.^[10] We therefore vacated the District Court's order and remanded for further proceedings.

On remand, the District Court requested additional briefing from the parties on various subjects, including "[w]hether the Second Amended Complaint alleges that Argenis Reyes, Rosalba Munoz, and/or Waldy Reyes asserted claims against 4207 Chester Ave. for AM Marlin's acts or omissions[,]" and "[w]hether the Second Amended Complaint alleges that SNIC consented to Waldy Reyes's participation in the May 13, 2020 mediation or waived its right to consent to his participation in the mediation." On September 22, 2023, following supplemental briefing, the District Court issued an order again dismissing the SAC in full. This appeal followed.

III.

The District Court had jurisdiction pursuant to 28 U.S.C. § 1332. We have jurisdiction pursuant to 28 U.S.C. § 1291. We review de novo whether a district court has properly complied with our mandate on remand.^[11] Our review of a dismissal for failure to state a claim is also de novo, applying the same standard as the District Court.^[12] We "accept [Appellants'] factual allegations as true and consider those facts in the light most favorable" to them, but "disregard legal conclusions and recitals of the elements of a cause of action supported by mere conclusory statements."^[13] To avoid dismissal, "a complaint must set forth enough factual allegations to state a claim for relief that is plausible on its face."^[14] While we "may not consider matters extraneous to the pleadings[,]" if "a document is integral to or explicitly relied upon in the complaint, it may be considered without converting the motion to dismiss into one for summary judgment[.]"^[15]

IV.

As a threshold matter, Appellants argue that the District Court lacked authority to grant SNIC's motion to dismiss on remand. We disagree.

"It is unremarkable to say that, on remand, a district court must comply with the letter and spirit of the mandate issued by the court of appeals."^[16] This "mandate rule applies, however, only to those issues that were decided by the appellate court."^[17] As such, "a district court ordinarily has substantial discretion in conducting further proceedings after a remand."^[18] Here, the record reveals that the District Court complied with both the letter and spirit of our mandate. While Appellants cite our wish not to decide Appellants' "extracontractual claims" on "an undeveloped record"-this was a request for "meaningful examin[ation]" of those claims by the District Court, not an order for additional fact discovery (which is irrelevant to the sufficiency of the SAC).^[19]

Appellants further argue that, as the District Court had already issued an order granting SNIC's motion to dismiss (i.e., the order we vacated), there was no pending motion to resolve on remand. We disagree. Vacatur of a district court order "cancels" that order retroactively, rendering it "void."^[20] As such, the District Court pr...