Reinicke Athens Inc. v. National Trust Insurance Company
Filing
21
OPINION AND ORDER GRANTING 13 Motion to Dismiss. Signed by Judge Thomas W. Thrash, Jr. on 4/5/17. (jkl)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
REINICKE ATHENS INC.,
Plaintiff,
v.
CIVIL ACTION FILE
NO. 1:16-CV-138-TWT
NATIONAL TRUST INSURANCE
COMPANY A Member of the FCCI
Insurance Group,
Defendant.
OPINION AND ORDER
This is an action seeking to recover on an insurance policy. It is before the
Court on the Defendant National Trust Insurance Company’s Motion to Dismiss [Doc.
13]. For the following reasons, the Defendant’s Motion to Dismiss [Doc. 13] is
GRANTED.
I. Background
The Plaintiff, Reinicke Athens, Inc., is an industrial equipment installation
company. In connection with work performed for SKC described below, it obtained
an Installation Floater insurance policy through the Defendant, National Trust
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Insurance Company.1 The Policy insured Reinicke Athens against “direct physical
loss” to an owner’s property that Reinicke Athens was installing.2 The Policy had
several important limitations, however. The Policy only covered Reinicke Athens’
“insurable interest.”3 Importantly, the Policy stated that “[i]f there is another policy
covering the same loss, other than that described above, [National Trust pays] only for
the amount of covered loss in excess of the amount due from that other policy...”4 The
Policy also included a Volunteer Payments section, which stated that “[Reinicke
Athens] must not, except at [its] own expense, voluntarily make any payments,
assume any obligations, pay or offer any rewards, or incur any other expenses except
as respects protecting property from further damage.”5
In October 2013, SKC, Inc. contracted with Reinicke Athens to assist in the
delivery of equipment to SKC’s facility in Covington, Georgia.6 As part of the
1
Compl. ¶¶ 1, 4.
2
Joint Stipulation, Ex. A at 49 [Doc. 9-1]. Normally matters outside the
pleadings cannot be considered without converting the motion to a motion for
summary judgment. Here, however, the parties have agreed to treat the Stipulation’s
exhibits as part of the pleadings.
3
Id. at 58.
4
Id. at 59.
5
Id. at 57.
6
Pl.’s Resp. to Def.’s Mot. to Dismiss, at 1 [Doc. 14].
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contract between SKC and Reinicke Athens, SKC was required to maintain its own
property insurance. In particular, Section 5.3.1 of the contract stated that “Owner shall
procure, pay for, and maintain...property insurance covering the property interest,” of
SKC and Reinicke Athens, and that Reinicke Athens “is responsible for the first
$5,000 of the deductible cost and [SKC] is responsible for the payment of any
remaining deductible cost...”7 In satisfaction of this contractual requirement, SKC
obtained an insurance policy with a deductible of $250,000.8
While assisting with the installation in December 2013, Reinicke Athens
damaged some of SKC’s equipment.9 SKC’s insurance policy paid for the damage, but
SKC sought reimbursement from Reinicke Athens and National Trust. Upon
reviewing the claim, National Trust determined that SKC’s insurance was primary,
and that Reinicke Athens only owed $5,000 pursuant to the limitation clause in the
contract between SKC and Reinicke Athens.10 Accordingly, National Trust paid out
$5,000 on the claim.11
7
Joint Stipulation, Ex. B at 26-27 [Doc. 9-2].
8
Compl. ¶ 6.
9
Id. ¶ 2.
10
Joint Stipulation, Ex. H at 1 [Doc. 9-8].
11
Id.
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SKC disagreed with National Trust’s determination, believing that National
Trust and Reinicke Athens owed the full $250,000 deductible, and subsequently
refused to pay Reinicke Athens for the work done under the contract until the
deductible was paid. As a result, Reinicke Athens filed an arbitration demand against
SKC on July 8, 2015, seeking the full contract price.12 SKC counterclaimed for
damages to its equipment.13 In order to preserve its rights before the expiration of the
contractual statute of limitations, Reinicke Athens also filed this action. Both parties
agreed to stay these proceedings pending the outcome of the arbitration because
National Trust had agreed to defend Reinicke Athens against SKC’s counterclaims
under a reservation of rights.14
In February of 2016, Reinicke Athens and SKC began to negotiate a settlement.
Reinicke Athens attempted to get National Trust to participate in the settlement
negotiations, but National Trust continued to maintain its position that it owed nothing
more than $5,000.15 Nevertheless, Reinicke Athens and SKC reached a settlement on
12
Id. at Ex. C, at 1 [Doc. 9-3].
13
Id. at Ex. D, at 13-14 [Doc 9-4].
14
Id. at Ex. E [Doc 9-5].
15
Id. at Ex. F [Doc 9-6].
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March 29, 2016 without National Trust’s involvement.16 According to the terms of the
settlement agreement, SKC retained its claim against Reinicke Athens for the
$250,000 deductible and did not pay that amount to Reinicke Athens. SKC then
agreed to pay Reinicke Athens $500,000 for work performed under the contract.17
Reinicke Athens then filed suit against National Trust in order to recover the $250,000
which SKC withheld under the settlement agreement.
II. Legal Standard
A complaint should be dismissed under Rule 12(b)(6) only where it appears that
the facts alleged fail to state a “plausible” claim for relief.18 A complaint may survive
a motion to dismiss for failure to state a claim, however, even if it is “improbable” that
a plaintiff would be able to prove those facts; even if the possibility of recovery is
extremely “remote and unlikely.”19 In ruling on a motion to dismiss, the court must
accept the facts pleaded in the complaint as true and construe them in the light most
favorable to the plaintiff.20 Generally, notice pleading is all that is required for a valid
16
Id. at Ex. G [Doc 9-7].
17
Id. at 3.
18
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009); Fed. R. Civ. P. 12(b)(6).
19
Bell Atlantic v. Twombly, 550 U.S. 544, 556 (2007).
20
See Quality Foods de Centro America, S.A. v. Latin American
Agribusiness Dev. Corp., S.A., 711 F.2d 989, 994-95 (11th Cir. 1983); see also
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complaint.21 Under notice pleading, the plaintiff need only give the defendant fair
notice of the plaintiff’s claim and the grounds upon which it rests.22
III. Discussion
Insurance contracts are enforced just like any other contract, and the parties
involved are “bound by its plain and unambiguous terms.”23 “Where the contractual
language unambiguously governs the factual scenario before the court, the court’s job
is simply to apply the terms of the contract as written...”24 Upon examining the terms
of the Policy, it is clear that Reinicke Athens’ claim against National Trust is
untenable because it settled the underlying claims without National Trust’s consent.
In this case, the Policy contained a voluntary payment clause. The voluntary
payment clause prohibited Reinicke Athens from settling any claims that might be
Sanjuan v. American Bd. of Psychiatry & Neurology, Inc., 40 F.3d 247, 251 (7th Cir.
1994) (noting that at the pleading stage, the plaintiff “receives the benefit of
imagination”).
21
See Lombard’s, Inc. v. Prince Mfg., Inc., 753 F.2d 974, 975 (11th Cir.
1985), cert. denied, 474 U.S. 1082 (1986).
22
See Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing Twombly, 550
U.S. at 555).
23
Hays v. Georgia Farm Bureau Mut. Ins. Co., 314 Ga. App. 110, 111
(2012) (internal quotations omitted).
24
Reed v. Auto-Owners Ins. Co., 284 Ga. 286, 287 (2008).
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covered under the contract without first obtaining the consent of National Trust.
Voluntary payment clauses like this are common in insurance contracts as they
“enable insurers to control the course of litigation concerning such claims, and also
serve to prevent potential fraud, collusion and bad faith on the part of insureds.”25
These clauses have been consistently upheld in Georgia, as long as the insurer fulfills
its duty to defend the insured when possible.26 National Trust had agreed to defend
Reinicke Athens in the arbitration against SKC’s counterclaims under a reservation
of rights, but Reinicke Athens settled anyway. While there may have been a legitimate
argument that National Trust was in fact obligated to pay more than $5,000, by
settling, Reinicke Athens never gave National Trust the opportunity to litigate that
issue.27 Under the terms of the Policy, Reinicke Athens did so at its own risk.
Reinicke Athens makes four arguments as to why the voluntary payments
clause does not apply here, each of which is unpersuasive. First, Reinicke Athens
25
Southern Guaranty Ins. Co. v. Dowse, 278 Ga. 674, 676 (2004).
26
See id. (“In Georgia, an insurer that denies coverage and refuses to
defend an action against its insured, when it could have done so with a reservation of
its rights as to coverage, waives the provisions of the policy against a settlement by
the insured...”). See also Trinity Outdoor, LLC v. Central Mut. Ins. Co., 285 Ga. 583,
585-87 (2009) (expounding upon the opinion in Dowse).
27
On that note, because Reinicke Athens violated the voluntary payment
clause of the Policy, the Court does not reach the issue of whether National Trust’s
interpretation of the contract between Reinicke Athens and SKC was correct.
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attempts to distinguish between property insurance, including the Installation Floater,
and general liability insurance, but provides absolutely no law to support its argument.
Second, the Plaintiff argues that the voluntary payment clause does not apply to the
Installation Floater because the Installation Floater does not “require that the insured
establish that it is legally obligated to pay before the carrier’s coverage obligation is
triggered.”28 But this is simply incorrect. Page 11 of the Installation Floater states that
“[National Trust] do[es] not pay for more than [Reinicke Athens’] insurable interest
in any property.” Reinicke Athens’ insurable interest in the property of another is only
that which it would be legally obligated to pay resulting in a loss to itself. But in any
event, regardless of whether the Policy only covered that which Reinicke Athens was
legally obligated to pay, Reinicke Athens has failed to show any reason why that
would affect the validity or applicability of the voluntary payment clause.
Third, the Plaintiff argues that it never made a “payment” to trigger the clause
because it actually “received a substantial sum” as a result of the arbitration.29 But the
terms of the settlement state that SKC was withholding $250,000 in satisfaction of its
claim that would have otherwise been paid to Reinicke Athens. The Plaintiff cannot
28
Pl.’s Resp. to Def.’s Mot. to Dismiss, at 7-8.
29
Id. at 9.
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have its cake and eat it too. Either the $250,000 withheld under the terms of the
settlement was not a payment, in which case the Plaintiff has suffered no loss, and
therefore does not have a claim under the Policy. Or it is a payment and implicates the
voluntary payment clause. The Court is of the latter view, but either perspective
counsels dismissal.
Finally, the Plaintiff argues that even if the voluntary payment clause does
apply, National Trust should be estopped from relying on it because it failed to defend
Reinicke Athens in the arbitration, pursuant to the exception laid out in Dowse. But
Dowse dealt with a situation in which the insurer completely refused to defend the
insured. As the Georgia Supreme Court explained in Trinity Outdoor, the insurer in
Dowse “refused to defend or indemnify the insured at all...”30 In this case, National
Trust did agree to defend Reinicke Athens under a reservation of rights. The fact that
the Defendant’s counsel did not contact Reinicke Athens for 30 days does not indicate
a complete refusal to defend Reinicke Athens,31 and Reinicke Athens has cited no
case law to suggest otherwise.
30
Trinity Outdoor, 285 Ga. at 586.
31
Cf. State Farm Fire & Ca. Co. v. King Sports, Inc., 827 F. Supp. 2d 1364,
1380 (N.D. Ga. 2011) (holding that an insurer’s refusal to appoint new counsel after
previous counsel resigned from the case did not vitiate insurer’s indemnity under
voluntary payment clause).
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National Trust also moves to dismiss the Plaintiff’s claim for bad faith denial
of an insurance claim. In Georgia, an insurer can be liable for fifty percent of the
covered loss plus attorney fees if the insurer refuses to pay a claim in “bad faith,”
defined as a frivolous or unfounded refusal to pay.32 “Ordinarily, the question of good
or bad faith is for the jury, but when there is no evidence of unfounded reason for the
nonpayment, or if the issue of liability is close, the court should disallow imposition
of bad faith penalties.”33 Without deciding whether National Trust’s interpretation was
ultimately correct, the Court finds that the Defendant had a reasonable basis for
believing that Reinicke Athens’ maximum liability was only $5,000. The language of
the contract between Reinicke Athens and SKC clearly states that Reinicke Athens is
only responsible for the first $5,000 of SKC’s deductible, but whether SKC’s
insurance policy or the Policy with National Trust was primary was an open question.
Because there was an open question, National Trust’s denial was not frivolous or
unfounded, and the bad faith claim must also be dismissed.
In short, because Reinicke Athens voluntarily settled its arbitration with SKC
without obtaining National Trust’s consent, Reinicke Athens released its claims under
32
See O.C.G.A. § 33-4-6(a); King v. Atlanta Cas. Ins. Co., 279 Ga. App.
554, 556 (2006).
33
International Indem. Co. v. Collins, 258 Ga. 236, 237 (1988).
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the Policy. And because National Trust had a reasonable basis to deny coverage, the
Plaintiff’s bad faith claim must also fail. As such, the Plaintiff’s claims should be
dismissed.
IV. Conclusion
For the reasons stated above, the Defendant’s Motion to Dismiss [Doc. 13] is
GRANTED.
SO ORDERED, this 5 day of April, 2017.
/s/Thomas W. Thrash
THOMAS W. THRASH, JR.
United States District Judge
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