Jones Stephens Corp v. Costal Ningbo Hardware Manufacturing Co., LTD et al

Filing 114

MEMORANDUM OPINION - By separate order, the court will DENY IN PART and GRANT IN PART the motions to dismiss. Specifically, the court will DENY the motions to dismiss as to (1) Count Five for civil conspiracy against Great American, New Century, and AmWINS; and (2) Count Six for negligence and wantonness against Great American. The court will GRANT the motions to dismiss as to (1) Count Six for negligence and wantonness against New Century and AmWINS; (2) Count Seven for negligent and wanton fai lure to procure insurance against New Century and AmWINS; (3) Count Eight for unjust enrichment against Great American, New Century, and AmWINS; and (4) Count Nine for tortious interference with contract against Great American, New Century, and AmWINS. Signed by Chief Judge Karon O Bowdre on 4/1/2019. (KEK)

FILED
2019 Apr-01 PM 01:36
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
JONES STEPHENS CORP,
Plaintiff,
v.
COASTAL NINGBO HARDWARE
MANUFACTURING CO., LTD, et
al.,
Defendants.

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CIVIL ACTION NO.
2:17-CV-00748-KOB

MEMORANDUM OPINION
Despite the tangled web of insurance coverage in this case, a relatively
simple question comes before the court: for which torts are Defendants plausibly
liable for allegedly incorporating a void exclusion into liability insurance policies?
Defendants Great American E&S Insurance Co., New Century Insurance
Services, Inc., and AmWINS Insurance Brokerage of California, LLC filed Rule
12(b)(6) motions to dismiss five of nine counts in Plaintiff Jones Stephens’s
amended complaint. (Docs. 75, 95, and 96, respectively). 1 Defendants contend
that Jones Stephens has not alleged that they plausibly committed the torts of civil
conspiracy, negligence or wantonness, or tortious interference with contract by
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Defendant Coastal Ningbo Hardware Manufacturing Co., LTD also filed a motion to
dismiss. (Doc. 105). In its motion, Coastal Ningbo raises unique personal jurisdiction, service
of process, and Rule 12(b)(6) challenges, so the court will rule on Coastal Ningbo’s motion to
dismiss separately.
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allegedly modifying insurance policies to deny coverage to Jones Stephens for
products liability claims.
For the following reasons, the court will DENY IN PART and GRANT IN
PART the motions to dismiss, after which the civil conspiracy claim against all
Defendants, the negligence and wantonness claim against Great American, and the
several claims the Defendants have not moved to dismiss will remain.
I.

STANDARD OF REVIEW
A motion to dismiss challenges the legal sufficiency of a complaint. Under

Rule 12(b)(6) of the Federal Rules of Civil Procedure, a defendant can move to
dismiss a complaint for “failure to state a claim upon which relief can be granted.”
The complaint will survive the motion to dismiss if it alleges “enough facts to state
a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007).
For a complaint to be “plausible on its face,” it must contain enough “factual
content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
And the court accepts as true the factual allegations in the complaint. Id.
But not all allegations can defeat a motion to dismiss. “[L]abels and
conclusions” and speculation “will not do.” Twombly, 550 U.S. at 555. So, the
court will look only at well-pled facts, and if those facts, accepted as true, state a
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plausible claim for relief, then the complaint will survive the motion to dismiss.
Iqbal, 556 U.S. at 678.
II.

FACTS
Jones Stephens, an Alabama corporation, is a wholesale distributor of

plumbing products and sells primarily to wholesale resellers. It purchased several
products from Coastal Ningbo, a Chinese corporation, from June 2007 to August
2015 and sold those products in the United States.
Jones Stephens required Costal Ningbo to maintain United States general
liability insurance policies for the products it sold to Jones Stephens as a condition
precedent for Jones Stephens’s purchases. Jones Stephens also required Coastal
Ningbo to name Jones Stephens as an additional insured party on those insurance
policies.
Coastal Ningbo purchased general liability insurance policies for the
products it shipped to Jones Stephens from Great American. New Century and
AmWINS “were the insurance brokers and agents involved in negotiating the
insurance coverage.” (Doc. 68 at ¶ 4). From 2007 to 2015, Costal Ningbo
periodically sent Jones Stephens updates to its proof of insurance indicating good
standing and Jones Stephens’s status as an additional insured under the Great
American policies.
Jones Stephens also alleges that it and Coastal Ningbo had a written contract
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under which Coastal Ningbo agreed to defend and indemnify Jones Stephens
against claims arising out of Jones Stephens’s distribution of Coastal Ningbo’s
products.
In August 2015, Jones Stephens stopped buying Coastal Ningbo’s products.
Then, according to Jones Stephens, Coastal Ningbo repudiated its obligation to
defend and indemnify Jones Stephens from liability arising out of Coastal
Ningbo’s products. (Doc. 68 at ¶ 31). Jones Stephens also alleges that all
Defendants worked together to incorporate an exclusion into the Great American
insurance policies, made effective retroactively as of the policies’ commencement
dates, that excluded coverage for claims arising on or after June 26, 2015. (Id. at
¶¶ 32–33). According to Jones Stephens, “[t]his exclusion creates inherent
ambiguities in the applicable policies, is void as a matter of law, and violates
public policy.” (Id. at ¶ 34). And Jones Stephens alleges that, after incorporating
the exclusion, “Great American, counter to its obligation under its policies, without
any reasonable basis, and absent any arguable reason, has systematically and
continually denied Plaintiff’s request for defense and indemnification for claims
involving Coastal Ningbo’s products.” (Id. at ¶ 35).
Relying on these factual allegations, Jones Stephens brings nine counts in its
amended complaint: (1) declaratory judgment that Great American is obligated to
defend and indemnify Jones Stephens; (2) bad faith against Great American for
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endorsing the exclusion and denying Jones Stephens’s claims; (3) breach of
contract against Coastal Ningbo for refusing to defend and indemnify Jones
Stephens; (4) common law indemnity against Coastal Ningbo for a specific product
that it sold to Jones Stephens; (5) civil conspiracy against all Defendants for
conspiring to modify the insurance policies; (6) negligence and wantonness against
Great American, New Century, and AmWINS for breaching their duty of care
owed to Jones Stephens by modifying the insurance policies; (7) negligent failure
to procure insurance against New Century and AmWINS; (8) unjust enrichment
against Great American, New Century, and AmWINS for the insurance premiums
Jones Stephens paid; and (9) tortious interference with contract against all
Defendants for depriving Jones Stephens of its contractual rights to defense and
indemnification from Coastal Ningbo and Great American.
Great American, New Century, and AmWINS have moved the court to
dismiss counts five through nine under Rule 12(b)(6) of the Federal Rules of Civil
Procedure. So the court turns next to whether the amended complaint states a
plausible claim for relief under those counts.
III.

ANALYSIS
A.

Count Five - Civil Conspiracy

First, Jones Stephens brings a claim for civil conspiracy against all
Defendants, alleging that Defendants “conspired with one another for the issuance
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of an exclusion that is unlawful and/or which violates public policy.” (Doc. 68 at
¶ 78).
To state a claim for civil conspiracy under Alabama law, a plaintiff must
allege “a combination between two or more persons to accomplish by concert an
unlawful purpose or to accomplish by unlawful means a purpose not itself
unlawful.” Webb v. Renfrow, 453 So. 2d 724, 727 (Ala. 1984) (citing Barber v.
Stephenson, 69 So. 2d 251 (Ala. 1954)). Fundamentally, “liability for civil
conspiracy rests upon the existence of an underlying wrong and if the underlying
wrong provides no cause of action, then neither does the conspiracy.” Jones v. BP
Oil Co., 632 So. 2d 435, 439 (Ala. 1993) (citing Allied Supply Co. v. Brown, 585
So. 2d 33 (Ala. 1991), and Webb v. Renfrow, 453 So. 2d 724 (Ala. 1984)).
Here, Defendants contend that Jones Stephens has failed to state a claim for
civil conspiracy because it has not alleged an underlying wrong that gives rise to a
cause of action for conspiracy. The court disagrees.
Jones Stephens alleges the tort of bad faith as the underlying wrong. (See
Doc. 68 at 12–13, 17–18). Jones Stephens contends that Great American acted in
bad faith by manufacturing a reason to deny Jones Stephens’s claims with the
allegedly void retroactive exclusion. These allegations can support a viable bad
faith claim under Alabama law and no Defendant has moved to dismiss the bad
faith claim. See Singleton v. State Farm Fire & Cas. Co., 928 So. 2d 280, 283
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(Ala. 2005) (recognizing bad faith claim against insurer when it, for example,
“manufacture[s ] a debatable reason to deny a claim, or [] reli[es] on an ambiguous
portion of a policy as a lawful basis for denying a claim”) (citing State Farm Fire
& Casualty Co. v. Slade, 747 So. 2d 293, 306–07 (Ala.1999)); Gulf Atl. Life Ins.
Co. v. Barnes, 405 So. 2d 916, 924 (Ala. 1981) (“Bad faith, then, is not simply bad
judgment or negligence. It imports a dishonest purpose and means a breach of
known duty, i.e., good faith and fair dealing, through some motive of self-interest
or ill will.”). And Jones Stephens alleges that the Defendants conspired together to
draft and incorporate the retroactive exclusion underlying its bad faith claim.
(Doc. 68 at ¶¶ 32, 78). So Jones Stephens states a plausible claim for civil
conspiracy.
For these reasons, the court will deny Defendants’ motions to dismiss count
five.
B.

Count Six - Negligence and Wantonness

Next, Jones Stephens alleges that Defendants breached their duties “to
exercise reasonable skill, care and diligence in the issuance and modification of
policies intended to benefit Plaintiff” and “to provide notice to Plaintiff of any
changes or modification to those policies” by “modifying the subject policies and
further fail[ing] to provide Plaintiff with the requisite notice of changes to those
policies.” (Doc. 68 at ¶¶ 84–86).
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Defendants contend that Jones Stephens has failed to state a claim for
negligence and wantonness because Jones Stephens has not alleged a duty that any
Defendant owed to it. For the following reasons, the court disagrees as to Great
American, but agrees as to New Century and AmWINS.
As to Great American, as an insurer, the law imposed on it “a duty . . . to act
honestly and in good faith in its dealings with its insured.” Carrier Exp., Inc. v.
Home Indem. Co., 860 F. Supp. 1465, 1478 (N.D. Ala. 1994). And Jones Stephens
alleges that it was an additional insured party under the Great American insurance
policies covering Coastal Ningbo’s products. So Jones Stephens has sufficiently
alleged that Great American owed it the duty of honesty and good faith.
And Jones Stephens has sufficiently alleged that Great American breached
that duty. An insurer breaches its duty owed to its insured and is liable for
negligence if it “fail[s] to do what a reasonably prudent insurance company would
have done under the same or similar circumstances or [does] something which a
reasonably prudent insurance company would not have done under the same or
similar circumstances . . . .” Carrier Exp., 860 F. Supp. at 1479 (quotation
omitted).
And it is liable for wantonness if it breaches that duty with “conscious
knowledge” of the probable damages to its insured. See Mazda Motor Corp. v.
Hurst, --- So. 3d ---, 2017 WL 2888857, at *16 (Ala. July 7, 2017); see also
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Carrier Exp., 860 F. Supp. at 1484 (upholding jury verdict that the insurer’s “bad
faith conduct was clearly and convincingly established as wanton, oppressive, and
malicious” for refusing to settle claims against the insured).
Here, Jones Stephens alleges that Great American incorporated the void
retroactive exclusion into its insurance policies to avoid liability for claims against
Jones Stephens that Great American would otherwise have to cover. This
allegation plausibly states a failure to do what a reasonably prudent insurance
company would have done under the same or similar circumstances with
knowledge that Jones Stephens would probably be damaged by losing insurance
coverage. So Jones Stephens states a plausible claim for negligence and
wantonness against Great American.
On the other hand, Jones Stephens alleges no factual basis for New
Century’s and AmWINS’s duty. The amended complaint only vaguely states that
“Am[WINS] . . . and New Century . . . were the insurance brokers and agents
involved in negotiating the insurance coverage made the basis of this action and
negotiating the exclusion which ultimately forms the basis of this action.” (Doc.
68 at ¶ 4). Relying only on this fact, Jones Stephens reaches the legal conclusion
that New Century and AmWINS owed it a duty to exercise reasonable care “in the
issuance and modification of policies intended to benefit Plaintiff” and a duty “to
provide notice to Plaintiff of any changes or modifications to those policies.” (Id.
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at 84–85).
But these conclusory allegations are not facts. Jones Stephens does not
allege how New Century and AmWINS were “involved”; how their role involved
issuing, modifying, or notifying Jones Stephens; or the existence of any
relationship to Jones Stephens. So Jones Stephens leaves the court to speculate as
to how New Century and AmWINS owed Jones Stephens any duty. Because
speculation cannot defeat a motion to dismiss, the court will grant the motions to
dismiss count six as to New Century and AmWINS.
C.

Count Seven - Negligent/Wanton Procurement

Jones Stephens next alleges that New Century and AmWINS “negligently
and/or wantonly failed to exercise reasonable skill, care and diligence when
procuring the policies at issue.” (Doc. 68 at ¶ 94). This claim fails for the same
reason count six against New Century and AmWINS fails: Jones Stephens alleges
no factual basis for New Century’s or AmWINS’s duty.
Alabama law recognizes a specific cause of action against an insurance
agent or broker for negligent or wanton procurement of insurance when, “[o]nce
the parties have come to an agreement on the procurement of insurance, the agent
or broker [fails to] exercise reasonable skill, care, and diligence in effecting
coverage.” Montz v. Mead & Charles, Inc., 557 So. 2d 1, 4 (Ala. 1987) (quotations
and citations omitted). Here, Jones Stephens alleges no agreement—or any
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relationship—between it and New Century and AmWINS. So, again, Jones
Stephens relies only on its conclusory allegation that New Century and AmWINS
owed it a duty of reasonable care. Because conclusory allegations cannot defeat a
motion to dismiss, the court will grant the motions to dismiss count seven.
D.

Count Eight - Unjust Enrichment

Jones Stephens has stipulated to the dismissal of its unjust enrichment claim,
so the court will grant Defendants’ motions to dismiss count eight. (See Doc. 85 at
10; Doc. 104 at 10).
E.

Count Nine - Tortious Interference With Contract

Finally, Jones Stephens alleges that all Defendants, with the intent to deprive
Jones Stephens of its contractual rights and benefits, interfered with two contracts
involving Jones Stephens: (1) the Great American insurance policies under which
Jones Stephens was an additional insured; and (2) the indemnity agreement
between Jones Stephens and Coastal Ningbo. (Doc. 68 at ¶¶ 109–10).
Under Alabama law, to establish a claim for tortious interference with a
contract, the plaintiff must prove (1) the existence of a contract; (2) the defendant’s
knowledge of the contract; (3) that “the defendant is independent of or a stranger to
the relation or contract”; (4) the defendant’s intentional interference with the
contract; and (5) damages as a result of the defendant’s interference. MAC East,
LLC v. Shoney’s, 535 F.3d 1293, 1297 (11th Cir. 2008).
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Under the third element of a tortious interference claim, a defendant is not a
stranger to a contract if “the defendant would benefit economically from the
alleged injured relations[] or [] both the defendant and the plaintiff are parties to a
comprehensive interwoven set of contract[s] or relations.” MAC East, 535 F.3d at
1297 (quoting Waddell & Reed, Inc. v. United Investors Life Ins. Co., 875 So. 2d
1143, 1156 (Ala. 2003)).
The Alabama Supreme Court has explained when a non-party to a contract is
a “participant” who cannot be considered a stranger to the contract:
For the sake of clarity, we adopt the term “participant” to describe an
individual or entity who is not a party, but who is essential, to the
allegedly injured relationship and who cannot be described as a
stranger. One cannot be guilty of interference with a contract even if
one is not a party to the contract so long as one is a participant in a
business relationship arising from interwoven contractual
arrangements that include the contract. In such an instance, the
participant is not a stranger to the business relationship and the
interwoven contractual arrangements define the participant’s rights
and duties with respect to the other individuals or entities in the
relationship. If a participant has a legitimate economic interest in and
a legitimate relationship to the contract, then the participant enjoys a
privilege of becoming involved without being accused of interfering
with the contract.
Waddell & Reed, 875 So. 2d at 1157 (emphasis added). In addition, a non-party
that “was involved in creating th[e] relationship” between the parties to a contract
“cannot be a stranger to the business relationship.” Tom’s Foods, Inc. v. Carn, 896
So. 2d 443, 455 (Ala. 2004).
Here, Jones Stephens’s tortious interference claim fails because no
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Defendant was a stranger to the contracts at issue in this case. For the following
reasons, every Defendant had a legitimate economic interest in and a legitimate
relationship to the two alleged contracts.
First, as to the Great American insurance policies, New Century and
AmWINS allegedly played some part in negotiating those policies and the
exclusion incorporated into the policies. And Great American, of course, is a party
to the insurance policies. So no Defendant is a stranger to the Great American
policies.
Second—as to the alleged indemnity agreement between Jones Stephens and
Coastal Ningbo—Great American, New Century, and AmWINS are all part of “a
business relationship arising from interwoven contractual arrangements” that
includes the indemnity agreement. See Waddell & Reed, 875 So. 2d at 1157. New
Century and AmWINS “were the insurance brokers and agents involved in
negotiating the insurance coverage”; Great American provided the insurance
coverage; the insurance policies covered Coastal Ningbo’s products sold to Jones
Stephens; and the indemnity agreement covered those same products. So, Coastal
Ningbo’s failure to perform under the indemnity agreement would affect Great
American’s potential liability under policies negotiated by New Century and
AmWINS, and the Defendants allegedly incorporated the exclusion into the
policies to avoid potential liability. So each Defendant had a legitimate
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relationship to and a legitimate interest in the indemnity agreement.
Jones Stephens does not allege any facts showing that any Defendant was a
stranger to the Great American insurance policies or the Coastal Ningbo indemnity
agreement. So Jones Stephens’s tortious interference with contract claim fails as a
matter of law and the court will grant the motions to dismiss count nine.
IV.

CONCLUSION
By separate order, the court will DENY IN PART and GRANT IN PART

the motions to dismiss.
Specifically, the court will DENY the motions to dismiss as to (1) Count
Five for civil conspiracy against Great American, New Century, and AmWINS;
and (2) Count Six for negligence and wantonness against Great American.
The court will GRANT the motions to dismiss as to (1) Count Six for
negligence and wantonness against New Century and AmWINS; (2) Count Seven
for negligent and wanton failure to procure insurance against New Century and
AmWINS; (3) Count Eight for unjust enrichment against Great American, New
Century, and AmWINS; and (4) Count Nine for tortious interference with contract
against Great American, New Century, and AmWINS.
DONE and ORDERED this 1st day of April, 2019.

____________________________________
KARON OWEN BOWDRE
CHIEF UNITED STATES DISTRICT JUDGE
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