Crandall v. Hartford Casualty Insurance Company et al
Filing
59
MEMORANDUM DECISION AND ORDER Granting in part and Denying in Part 36 MOTION for Summary Judgment filed by Hartford Steam Boiler Inspection and Insurance Company, The, Hartford Casualty Insurance Company. Signed by Judge Ronald E Bush. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by jm)
UNITED STATES DISTRICT COURT
DISTRICT OF IDAHO
DANIEL W. CRANDALL,
Case No.: CV 10-00127-REB
Plaintiff,
MEMORANDUM DECISION AND
ORDER RE: DEFENDANTS’
MOTION FOR SUMMARY
JUDGMENT
vs.
HARTFORD CASUALTY INSURANCE
COMPANY, and HARTFORD STEAM BOILER
INSPECTION & INSURANCE COMPANY,
(Docket No. 36)
Defendants.
Currently pending before the Court is Defendants’ Motion for Summary Judgment
(Docket No. 36). Having carefully reviewed the record, participated in oral argument, and
otherwise being fully advised, the Court enters the following Memorandum Decision and Order:
I. BACKGROUND
Plaintiff brings this lawsuit as the “legal assignee of claims” for CatRisk.us, LLC
(“CatRisk”), an Idaho limited liability company providing electronic medical billing services to
small physician practices in several states. See Pl.’s Compl., pp. 1-2 (Docket No. 1). CatRisk
performed these services entirely over the internet, using computer network technologies to
communicate with its medical, insurance, and governmental clients/subscribers. See id. at p. 2.
To insure the risk of a computer system failure, CatRisk purchased a “Special Multi-Flex
Spectrum Policy” (the “Policy”) from Defendant Hartford Casualty Insurance Company
(“Hartford Casualty”), effective on May 1, 2008. See id.
MEMORANDUM DECISION AND ORDER - 1
Plaintiff alleges that on May 21, 2009, CatRisk suffered a sudden and catastrophic
mechanical breakdown, resulting in the total loss of computer functions. See id. at pp. 3 & 7.
Functionality was restored eight days later and CatRisk was able to resume business operations.
See id. Plaintiff reported the incident to CatRisk’s insurer, Defendant Hartford Casualty, and, on
June 3, 2009, Plaintiff submitted a formal claim for losses and damages. See id. at p. 7. In a July
15, 2009 letter, Defendant Hartford Casualty denied Plaintiff’s claim. See id.
As a result of Defendant Hartford Casualty’s denial of coverage, Plaintiff asserts the
following claims: (1) breach of contract; (2) breach of implied covenant of good faith and fair
dealing; (3) negligent misrepresentation; (4) punitive damages; and (5) negligent infliction of
emotional distress. See id. at pp. 8-14. Plaintiff asserts these claims against both (1) Defendant
Hartford Casualty and (2) Defendant Hartford Steam Boiler Inspection and Insurance Company
(“Hartford Steam Boiler”).1
Collectively, Defendants move for summary judgment, arguing, first, that Plaintiff’s
claims fail because CatRisk, as the named insured, is the real party in interest and that any
assignment of CatRisk’s claims to Plaintiff was invalid; second, that Plaintiff’s claims for
negligent infliction of emotional distress, lost compensation, and losses on investment in CatRisk
should be dismissed because CatRisk, as the named insured, is incapable of holding such claims;
third, that Plaintiff’s remaining claims for damages are speculative, unrelated to any duties owed
1
Plaintiff claims that Defendant Hartford Steam Boiler reinsured Defendant Hartford
Casualty for 100% of CatRisk’s alleged losses and that Defendant Hartford Casualty delegated
the investigation of CatRisk’s claim to Defendant Hartford Steam Boiler. See Pl.’s Compl., pp.
12-13 (Docket No. 1). Because Defendant Hartford Steam Boiler “conducted the claims
investigation and is the ultimate risk-bearer,” Plaintiff asserts that a “special professional
relationship” between CatRisk and Defendant Hartford Steam Boiler exists to warrant naming
Defendant Hartford Steam Boiler as a co-Defendant “even without privity to the reinsurance
agreement.” See id. at p. 13.
MEMORANDUM DECISION AND ORDER - 2
by Defendants, and amount to improper claims for prospective economic advantage; fourth, that
Plaintiff’s claim for punitive damages is procedurally defective; fifth, that Plaintiff’s negligent
misrepresentation claim is not recognized under Idaho law; and, finally, that Plaintiff’s contract
claims against Defendant Hartford Steam Boiler must be dismissed because Defendant Hartford
Steam Boiler was not a party to the Policy at issue in this action. See Defs.’ Mem. in Supp. of
Mot. For Summ. J., p. 1 (Docket No. 36, Att. 1).
II. DISCUSSION
A.
Motion for Summary Judgment: Standard of Review
Summary judgment is used “to isolate and dispose of factually unsupported claims . . . .”
Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). It is “not a disfavored procedural
shortcut,” but rather is “the principal tool[ ] by which factually insufficient claims or defenses
[can] be isolated and prevented from going to trial with the attendant unwarranted consumption
of public and private resources.” Id. at 327. “[T]he mere existence of some alleged factual
dispute between the parties will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
However, the evidence, including all reasonable inferences which may be drawn
therefrom, must be viewed in a light most favorable to the non-moving party (see id. at 255) and
the Court must not make credibility findings. Id. Direct testimony of the non-movant must be
believed, however implausible. Leslie v. Grupo ICA, 198 F.3d 1152, 1159 (9th Cir. 1999). On
the other hand, the Court is not required to adopt unreasonable inferences from circumstantial
evidence. McLaughlin v. Liu, 849 F.2d 1205, 1208 (9th Cir. 1988).
MEMORANDUM DECISION AND ORDER - 3
The moving party bears the initial burden of demonstrating the absence of a genuine
issue of material fact. Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001). To carry this
burden, the moving party need not introduce any affirmative evidence (such as affidavits or
deposition excerpts) but may simply point out the absence of evidence to support the nonmoving
party’s case. Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 532 (9th Cir. 2000).
This shifts the burden to the non-moving party to produce evidence sufficient to support a
jury verdict in its favor. Anderson, 477 U.S. at 256-57. The non-moving party must go beyond
the pleadings and show “by [its] affidavits, or by the depositions, answers to interrogatories, or
admissions on file” that a genuine issue of material fact exists. Celotex, 477 U.S. at 324.
However, the Court is “not required to comb through the record to find some reason to
deny a motion for summary judgment.” Carmen v. San Francisco Unified Sch. Dist., 237 F.3d
1026, 1029 (9th Cir. 2001) (quoting Forsberg v. Pac. Northwest Bell Tel. Co., 840 F.2d 1409,
1418 (9th Cir. 1988)). Instead, the “party opposing summary judgment must direct [the Court’s]
attention to specific triable facts.” Southern California Gas Co. v. City of Santa Ana, 336 F.3d
885, 889 (9th Cir. 2003). A statement in a brief, unsupported by the record, cannot be used to
create an issue of fact. Barnes v. Independent Auto. Dealers, 64 F.3d 1389 n. 3 (9th Cir. 1995).
B.
A Valid Assignment? Plaintiff’s Standing to Maintain CatRisk’s Causes of Action
Defendants preliminarily question CatRisk’s purported assignment of its claims against
Defendants Hartford Casualty and Hartford Steam Boiler to Plaintiff. Specifically, Defendants
contend that (1) Plaintiff “cannot demonstrate that a valid assignment of the claims from CatRisk
to [Plaintiff] ever actually occurred” and (2) even if the assignment was valid, it was done to
“circumvent[ ] the well-established rule that a corporate entity may not represent itself pro se.”
See Defs.’ Mem. in Supp. of Mot. for Summ. J., p. 3 (Docket No. 36, Att. 1).
MEMORANDUM DECISION AND ORDER - 4
1.
CatRisk’s Assignment of Its Claims to Plaintiff
Throughout his Complaint, Plaintiff identifies himself as “the legal assignee” of
CatRisk’s claims. See, e.g., Pl.’s Compl., pp. 1 & 5 (Docket No. 1). However, Defendants
question the legitimacy of any such assignment, claiming that “there exists no evidence that the
assignment of a chose in action was completed and delivered from CatRisk to [Plaintiff].” See
Defs.’ Mem. in Supp. of Mot. for Summ. J., p. 4 (Docket No. 36, Att. 1).
Plaintiff does not dispute the need for CatRisk to formally assign its claims to Plaintiff in
order for Plaintiff to proceed on CatRisk’s behalf against Defendants – indeed, Plaintiff seems to
suggest that a written assignment actually exists, but says that it could not be found. See Pl.’s
Opp. to Defs.’ Mot. for Summ. J., p. 1 (Docket No. 46, Att. 1). Regardless, Plaintiff indicates
that CatRisk has since executed a resolution that ratified the previous assignment and authorized
the execution and delivery of a replacement assignment. See id. at pp. 1-2. That “Resolution”
states in relevant part that CatRisk resolves and consents to the following action:
•
Ratify the previous absolute assignment of all claims, demands and causes
of action of any kind whatsoever legally actionable under CatRisk’s
insurance contracts entered into with Daniel W. Crandall . . . following the
occurrence of the May 21, 2009 equipment breakdown disaster, which
prior assignment and resolution cannot be located in the current written
records of the company.
•
This absolute assignment extended to any and all claims, legally
actionable under CatRisk’s insurance contracts . . . .
•
The previous assignment specifically granted any and all claims, which
the undersigned has or may have against Hartford Casualty Insurance
Company and Hartford Steam Boiler Inspection & Insurance Company,
including breach of contract, bad faith, punitive damages, etc.
•
The previous assignment was absolute in that the undersigned
relinquished all interest and control in any cause of action whatsoever to
the assignee who became therewith the real and legal party in interest; and
MEMORANDUM DECISION AND ORDER - 5
therefore assignee could in his own name and for his own benefit
prosecute, collect, settle, compromise and grant releases on said claim as
he in his sole discretion deems advisable.
•
CatRisk . . . is hereby authorized to execute and deliver the replacement
assignment to Daniel W. Crandall . . . .
See 3/16/11 Crandall Aff. at Ex. 1 (Docket No. 39, Att. 1). The contemporaneous “Absolute
Claims Assignment” (presumably the “replacement assignment” referenced above) mirrored the
Resolution’s direction by “absolutely assign[ing] to Daniel W. Crandall . . . any and all claims,
including demands, and causes of action of any kind whatsoever which the undersigned has or
may have . . . against Hartford Casualty Insurance Company and Hartford Steam Boiler
Inspection & Insurance Company . . . .” See id. at Ex. 2.
Notwithstanding Defendants’ argument that CatRisk’s most recent (re)assignment of
claims to Plaintiff lacked corporate formalities and took place after Defendants’ Motion for
Summary Judgment on the issue (see Defs.’ Reply in Supp. of Mot. for Summ. J., p. 2, n.1
(Docket No. 47)), the Court cannot conclude as a matter of law that CatRisk has not assigned its
claims to Plaintiff. To be sure, the record reflects the possibility of either (1) a proper, original
assignment of claims from CatRisk to Plaintiff, or (2) a subsequent (re)assignment of claims
from CatRisk to Plaintiff. Construing the facts supporting these possibilities in Plaintiff’s favor,
the Court cannot find here that either no assignment between CatRisk and Plaintiff ever existed
or, similarly, no such assignment currently exists. At the very least, questions of fact exist to
warrant the denial of Defendants’ Motion for Summary Judgment on this discrete issue.2
2
Defendants alternately argue that Defendant Hartford Casualty first needed to consent
in writing before CatRisk could assign its claims to Plaintiff, pointing to the following Policy
language: “Your rights and duties under this policy may not be transferred without our written
consent except in the case of death of an individual Named Insured.” See Defs.’ Mem. in Supp.
MEMORANDUM DECISION AND ORDER - 6
2.
Plaintiff’s Representation of CatRisk Pro Se
“Although an individual may proceed pro se in federal court, ‘[a] corporation may appear
in federal court only through licensed counsel.’” See Defs.’ Mem. in Supp. of Mot. for Summ. J.,
p. 5 (Docket No. 36, Att.) (citing U.S. v. High Country Broad. Co., 3 F.3d 1244 (9th Cir. 1993)).
Assuming the assignment’s validity (see supra at pp. 5-7), Defendants claim that CatRisk’s
assignment of claims to Plaintiff circumvents the rule requiring corporate representation. See id.
at pp. 5-9 (“In order to avoid the well-established rule prohibiting pro se entity representation,
Mr. Crandall ‘assigned’ CatRisk’s claims to himself. . . . . Mr. Crandall’s purported assignment
was for the sole purpose of circumventing the rule against pro se corporate representation in
federal court and accordingly, this Court should dismiss the Complaint.”).
While originally taking issue with Defendants’ characterization of the motivation behind
CatRisk’s assignment of claims, Plaintiff has since retained the services of Andrew T. Schoppe,
of Mot. for Summ. J., p. 4 (Docket No. 36, Att. 1). The Court is persuaded by Plaintiff’s retort,
and concludes that such language does not apply to post-loss assignments. See Pl.’s Opp. to
Defs.’ Mot. for Summ. J., pp. 2-3 (Docket No. 46, Att. 1); see also 17 Williston on Contracts
§ 49:126 (4th ed.) (“As a general principle, a clause restricting assignment does not in any way
limit the policyholder’s power to make an assignment of the rights under the policy – consisting
of the right to receive the proceeds of the policy – after a loss has occurred. The reasoning here
is that once a loss occurs, an assignment of the policyholder’s rights regarding that loss in no
way materially increases the risk to the insurer. After a loss occurs, the indemnity policy is no
longer an executory contract of insurance. It is now a vested claim against the insurer and can be
freely assigned or sold like any other chose in action or piece of property.”). Moreover, if
Defendants’ argument against post-loss assignments of claims is accepted, the Court questions
when an insurer would ever consent to such an assignment, rendering such contractual language
illusory or, at a minimum, ambiguous. To the extent the Policy is ambiguous in this respect, it is
construed against Defendants. Cascade Auto Glass, Inc. v. Idaho Farm Bureau Ins. Co., 115
P.3d 751, 754 (Idaho 2005) (“If the Court finds any ambiguities in the insurance policy, they
must be construed against the insurer.”) (citing Foremost Ins. Co. v. Putzier, 627 P.2d 317, 321
(Idaho 1981) (“. . . insurance policies are to be construed most liberally in favor of recovery,
with all ambiguities being resolved in favor of the insured.”)).
MEMORANDUM DECISION AND ORDER - 7
an attorney licensed to practice law in the State of Idaho. See 4/4/11 Not. of Appearance
(Docket No. 48). Therefore, to the extent Plaintiff was procedurally prohibited from pursuing
CatRisk’s assigned claims himself, he is now represented by legal counsel. As a result,
Defendants’ argument no longer applies, warranting the denial of Defendants’ Motion for
Summary Judgment on this discrete issue.3
C.
CatRisk’s Claims and Plaintiff’s Alleged Damages
“When an insured assign[s] rights to recover under an insurance policy, the assignee is in
the same position as the insured and takes only those rights and remedies the insured had.”
Hartman v. United Heritage Pop. And Ca. Co., 108 P.3d 340, 345 (Idaho 2005) (citing J.R.
Simplot Co. v. W. Heritage Ins. Co., 977 P.2d 196 (Idaho 1999)). In other words, here, Plaintiff
stands in CatRisk’s shoes – that is, Plaintiff cannot acquire by assignment anything to which the
insured, CatRisk, has no rights. With this principle in mind, Defendants argue that Plaintiff is
attempting to assert claims for damages CatRisk did not hold, namely: (1) Plaintiff’s claim for
negligent infliction of emotional distress, (2) Plaintiff’s “lost compensation damages,” and (3)
Plaintiff’s loss on investment in CatRisk. See Defs.’ Mem. in Supp. of Mot. for Summ. J., pp. 913 (Docket No. 36, Att. 1).
1.
Plaintiff’s Claim for Negligent Infliction of Emotional Distress
Defendants contend that Plaintiff’s negligent infliction of emotional distress claim must
fail because CatRisk, as a business entity, is incapable of maintaining such a claim. See id. at p.
3
During oral argument, Defendants’ counsel conceded that this portion of their Motion
for Summary Judgment no longer applied, in light of Mr. Schoppe’s involvement in Plaintiff’s
claims.
MEMORANDUM DECISION AND ORDER - 8
10 (“CatRisk is not a natural person subject to ‘emotional distress’; there is no ‘emotional injury’
of CatRisk, nor any ‘physical manifestation’ of such injury.”).
It is true that, practically speaking, CatRisk (the inanimate object that it is) cannot exhibit
“some physical manifestation of . . . emotional injury” as is required to support a negligent
infliction of emotional distress claim in Idaho. See Johnson v. McPhee, 210 P.3d 563, 574
(Idaho Ct. App. 2009) (describing elements of negligent infliction of emotional distress claim as
category of negligence, requiring elements of negligence claim “[i]n addition to . . . some
physical manifestation of the plaintiff’s emotional injury.”) (citing Black Canyon Racquetball
Club, Inc. v. Idaho First Nat’l Bank, 804 P.2d 900, 906 (Idaho 1991)).
Still, Plaintiff appears to be arguing that, independent of CatRisk’s claims, he himself is
an “insured” under the Policy, capable of bringing a negligent infliction of emotional distress
claim on his own behalf. See Pl.’s Opp. to Defs.’ Mot. for Summ. J., pp. 4-5 (Docket No. 46,
Att. 1) (quoting following Policy language: “. . . . Your members are also insureds, but only
with respect to the conduct of your business. Your managers are insureds, but only with respect
to their duties as your managers.”). Except, Plaintiff’s Complaint states in no uncertain terms
that this action is premised upon CatRisk’s claims – not Plaintiff’s. Plaintiff unequivocally
recognizes as much when he states on more than one occasion that he is “bring[ing] this action
as the legal assignee of claims for CatRisk[ ].” See Pl.’s Compl., pp. 1 & 5 (Docket No. 1)
(emphasis added).
Considering the Complaint as written, and therefore understanding that Plaintiff’s
negligent infliction of emotional distress claim is, ultimately, CatRisk’s claim, such a cause of
MEMORANDUM DECISION AND ORDER - 9
action cannot be sustained here.4 Defendants’ Motion for Summary Judgment is granted in this
limited respect.
2.
Plaintiff’s Alleged “Lost Compensation” Damages
On or around September 30, 2010, Plaintiff’s expert, Thomas J. South, submitted a report
detailing “an economic analysis of the damages resulting from the equipment breakdown
accident on May 21, 2009, with the subsequent denial of insurance by the Defendants.” See
9/30/10 Rpt. at p. 1, attached as Ex. C to 2/25/11 McGee Aff. at ¶ 4 (Docket No. 36, Att. 2). Mr.
South includes Plaintiff’s “lost compensation” among these damages, stating:
Lost Compensation: At the beginning of 2008, Mr. Crandall stopped working at
his previous employment and put all his efforts into building CatRisk. He
intended for the medical bill and accounting services segment of CatRisk to grow
and sustain the company. With the equipment breakdown accident of May 21,
2009, and the subsequent denial of insurance on that breakdown, it was clear that
the work he had done in the previous 17 months was wasted. He then attempted
to find a qualified and affordable attorney to litigate the case who had an
understanding of the technology component of this case, but was unable to find
such a person. Due to these reasons, Mr. Crandall has not been able to return to
his prior level of compensation. It is anticipated that the litigation for this case
will continue through May of 2011. For purposes of this report, I used the date
of May 21, 2011, which will be two full years from the date of the equipment
breakdown accident, and three years and almost five months from beginning the
work of developing the CatRisk business. All of that time has been and will be
without receiving any compensation. His weighted average of wages from 2003
through 2007 was $351,455. A Cost-of-Living Adjustment (COLA) of 2.78%
was applied to the future wages based on the weighted average of COLA’s for 10
years provided by the Social Security Administration. Also, the future earnings
have been converted to present value utilizing a discount rate of 2.74%. This rate
is the 10 year U.S. Treasury Note Rate as of September 24, 2010, and is
4
In making this ruling, the Court is not determining the legal effect, if any, of the
Policy’s language (see supra at p. 9) concerning the scope of insurance coverage on Plaintiff’s
individual status as a separate “insured.” Instead, it finds only that CatRisk (through Plaintiff) is
making a claim for negligent infliction of emotional distress and that business entities cannot
assert such claims. Plaintiff’s counsel admitted as much during oral argument.
MEMORANDUM DECISION AND ORDER - 10
considered a risk-free rate of investment. Total damage for lost compensation for
the period covering January 1, 2008, to May 21, 2011, is $1,190,416.
See id. at p. 2. Pointing again to the fact that Plaintiff is pursuing only CatRisk’s assigned
claims, Defendants argue that Mr. South’s above-referenced “lost compensation” damages are
not recoverable in this action because “[n]either [Plaintiff’s] prior wages, nor the wages
[Plaintiff] might expect to receive in the current job market, have any relationship to the claims
of CatRisk.” See Defs.’ Mem. in Supp. of Mot. for Summ. J., p. 11 (Docket No. 36, Att. 1).
Plaintiff does not substantively respond to Defendants’ arguments but, instead, points out
only that Defendants have not disclosed a damages expert of their own. Therefore, according to
Plaintiff, Mr. South’s calculations should be accepted as appropriately-claimed damages. See
Pl.’s Opp. to Defs.’ Mot. for Summ. J., pp. 3-4 (“Without its own damages expert to help it
navigate among forensic accounting principles, and testify as to the presumptions forming the
basis of Defendants’ arguments set forth in the summary judgment, the Court must presume that
Plaintiff’s report and the methodologies used in arriving at the categories and amounts of
damages were done in a proper manner under the summary judgment standard (wherein all
inferences are to be made in the non-moving party’s favor.”). Apparently, Plaintiff misperceives
that the act of not naming an expert on a particular issue constitutes some sort of summary
judgment concession upon the issue addressed by the opposing party’s expert. The Court does
not agree.
For the purposes of Defendants’ Motion for Summary Judgment, it is immaterial whether
Defendants have their own damages expert. Likewise, Mr. South’s credentials are immaterial, as
is the mathematical legitimacy of his computations. Simply put, Plaintiff’s ability to recover
MEMORANDUM DECISION AND ORDER - 11
damages represented by his own “lost compensation” necessarily turns on CatRisk’s ability to
claim those same category of damages by way of a coverage dispute against its insurer. Based
upon the record, argument presented thus far, and case law cited (or not cited, as the case may
be), CatRisk’s damages cannot be measured using estimates of Mr. Crandall’s opportunity costs
and/or lost compensation. Defendants’ Motion for Summary Judgment is granted in this limited
respect.
3.
Plaintiffs’ Alleged Damages for “Loss on Investment in CatRisk”
Mr. South also identifies “loss on investment in CatRisk” as a type of damage that
Plaintiff sustained as a consequence of the May 21, 2009 incident and subsequent events.” See
9/30/10 Rpt. at p. 2, attached as Ex. C to 2/25/11 McGee Aff. at ¶ 4 (Docket No. 36, Att. 2).
Specifically, Mr. South states:
Loss on Investment in CatRisk: Significant expenses were incurred in the start-up
years of CatRisk. There is an expectation that any new company will incur startup expenses. However, in the case of CatRisk, there will never be a chance to recoup those expenses and become profitable because of the equipment breakdown
accident. Although there was some income, the overall net loss for 2008 and
2009 was $279,046. This loss can be attributed to the following: (1) typical startup expenses; (2) research and development for the specialized services that
CatRisk would be offering; and (3) disaster expenses associated with the May 21,
2009, equipment breakdown accident of $43,917.
See id. Defendants again challenge Plaintiff’s ability to recover this type of damage, arguing
that it is not a recoverable amount under the Policy. See Defs.’ Mem. in Supp. of Mot. for
Summ. J., p. 12 (Docket No. 36, Att. 1) (“For the same reasons Mr. Crandall cannot recover ‘lost
compensation’ – his status as a purported assignee of CatRisk – he cannot recover his individual
loss on investment in CatRisk.”); see also Defs.’ Reply in Supp. of Mot. for Summ. J., p. 5
(Docket No. 47) (“Finally, all of the alleged damage calculations arise out of contractual
MEMORANDUM DECISION AND ORDER - 12
liabilities and obligations of CatRisk or Mr. Crandall separate and apart from the property
damage Mr. Crandall alleges was covered by CatRisk’s contract for insurance with Hartford. In
other words, even if the equipment breakdown was a covered event – which it was not – Mr.
Crandall could not claim the losses he is claiming.”).
As with Plaintiff’s alleged “lost compensation” damages, the Court disregards any
argument suggesting that the lack of any expert testimony from Defendants automatically
buttresses Plaintiff’s ability to recover Plaintiff’s alleged losses here – it does not. See supra at
pp. 11-12. Rather, the Court agrees with Defendants that the type of recovery sought through
this class of damages is not an accurate assessment of CatRisk’s actual damages (as opposed to
Plaintiff’s individualized damages) resulting from the Defendants’ denial of coverage. If,
indeed, these damages are a function of the May 21, 2009 incident alone, Defendants’ conduct –
liability notwithstanding – is of little importance because it could not have caused the damages
Plaintiff now claims vis à vis his investment losses. These damages are too attenuated and not
particular to CatRisk itself; hence, Defendants’ Motion for Summary Judgment is granted in this
limited respect.
4.
CatRisk’s Remaining Damages Claim
Mr. South goes on to identify three additional sets of damages that Defendants also lodge
objections against, including: (1) “Loss on Investment in Physicians Billing and Support
Services, Inc.” (“PSSI”); (2) “Loss on Investment in Moore Support Services, Inc.” (“MSSI”);
and (3) “Loss on Accounting Services.” See 9/30/10 Rpt. at pp. 2-3, attached as Ex. C to 2/25/11
McGee Aff. at ¶ 4 (Docket No. 36, Att. 2); see also Defs.’ Mem. in Supp. of Mot. for Summ. J.,
pp. 13-17 (Docket No. 36, Att. 1).
MEMORANDUM DECISION AND ORDER - 13
a.
Plaintiff’s Alleged Loss on Investment in PSSI
According to Mr. South, CatRisk paid $127,750 to purchase PSSI on November 1, 2008.
See 9/30/10 Rpt. at p. 2, attached as Ex. C to 2/25/11 McGee Aff. at ¶ 4 (Docket No. 36, Att. 2).
Plaintiff was in the process of developing PSSI but, after the May 21, 2009 incident, “was unable
to devote any additional time to the success of this company.” See id. Plaintiff therefore seeks
to recover this investment amount (less $29,000 and corresponding interest)5 arising from
Defendants’ denial of coverage. See id.
As presented, these alleged losses are problematic for at least two reasons. First, based
upon the record before the Court, Plaintiff’s inability to further develop PSSI appears to be a
function of the May 21, 2009 incident itself, not Defendants’ subsequent coverage decision.
Other than pointing to an absence of expert testimony from Defendants (see supra at pp. 11-12),
Plaintiff does not dispute this point.6 Second, even when assuming a causal relationship between
the losses sought and Defendants’ conduct, Plaintiff fails to actually value PSSI at the time of
PSSI’s transfer to IFRS 4 Consulting, LLC. This is significant because if, at the time of transfer,
PSSI’s value was less than the original $127,750 purchase price, there would be no basis to
claim that full investment amount as damages. Yet, neither Plaintiff nor Mr. South attempts to
provide any figures substantiating these claimed damages, other than to assume that PSSI’s
initial purchase price on November 1, 2008, without more, represents PSSI’s value nearly seven
5
In forgiveness of a $29,000 debt to Mike Smith, CatRisk transferred ownership of PSSI
to Mike Smith’s wholly owned company, IFRS 4 Consulting, LLC, effective January 1, 2010.
See 9/30/10 Rpt. at p. 2, attached as Ex. C to 2/25/11 McGee Aff. at ¶ 4 (Docket No. 36, Att. 2).
6
During oral argument, Plaintiff’s counsel stated that he had “no counterargument” to
Defendants’ critique of Plaintiff’s alleged loss on investment in PSSI.
MEMORANDUM DECISION AND ORDER - 14
months later. These shortcomings compromise Plaintiff’s attempt to recover alleged investment
losses in PSSI; Defendants’ Motion for Summary Judgment is granted in this limited respect.
b.
Plaintiff’s Alleged Loss on Investment in MSSI
Mr. South states that CatRisk purchased MSSI from Lynne Moore for $155,850 and
provided a $31,053 loan to MSSI. See 9/30/10 Rpt. at pp. 2-3 & Appx. E, attached as Ex. C to
2/25/11 McGee Aff. at ¶ 4 (Docket No. 36, Att. 2). “Due to the inability to service the clients of
MSSI, [Ms.] Moore took [MSSI] back from CatRisk on November 1, 2009, through an
installment contract,” consisting of three separate notes receivable from Ms. Moore totaling
$185,903 (the amount CatRisk previously put into MSSI, less one loan payment of $1,000). See
id. at p. 3 & Appx. E. According to Mr. South, the current amount owing to CatRisk is $171,859
(the installment sale amount, less $14,044 in payments); in turn, Plaintiff seeks $171,859 in
damages as CatRisk’s alleged loss on investment in MSSI. See id. at p. 3 & Appx. E (“As
CatRisk is in need of immediate cash, it will need to sell those notes receivable at a discount.
However, due to lack of collateral, no down payment, too long of a term, and too much risk of
default, a company in the business of purchasing notes stated that it had no value.”).
The Court again, on this record, questions Plaintiff’s ability to recover CatRisk’s alleged
investment losses in MSSI. First, as with Plaintiff’s alleged investment losses in PSSI, it is not
clear whether this “damage” is the result of Defendants’ conduct or, rather, the May 21, 2009
incident. Other than a repeated reference to an absence of expert testimony from Defendants
(see supra at pp. 11-12), Plaintiff’s briefing does not take issue with this point.7 Second, the
Court understands that CatRisk holds the notes to the claimed $171,859 such that, assuming Ms.
7
During oral argument, Plaintiff’s counsel stated that he had “no counterargument” to
Defendants’ critique of Plaintiff’s alleged loss on investment in MSSI.
MEMORANDUM DECISION AND ORDER - 15
Moore continues with her payments to Plaintiff/CatRisk, there is no injury in need of
reimbursement. Finally, without a valuation analysis of MSSI, the Court cannot accept
Plaintiff’s unilateral perspective that the at-issue notes receivable have no value. These
shortcomings compromise Plaintiff’s attempt to recover alleged investment losses in MSSI;
Defendants’ Motion for Summary Judgment is granted in this limited respect.
c.
Plaintiff’s Alleged Loss on Accounting Services
Following the May 21, 2009 incident, Mike Smith “was forced to leave CatRisk due to
loss of business and a lack of funds to pay him.” See 9/30/10 Rpt. at p. 3, attached as Ex. C to
2/25/11 McGee Aff. at ¶ 4 (Docket No. 36, Att. 2). According to Mr. South, “[s]ince that time,
[Mr. Smith] has secured two contracts for accounting work worth $177,500 which would have
been clients of CatRisk if he were still an employee.” See id. Plaintiff seeks to recover 85% of
these contracts’ worth ($150,875), recognizing that “[a]ccounting firms generally sell on the
open market at anywhere from 85-125% of one year’s gross fees.” See id. (“If CatRisk were to
purchase similar clients, it would cost $150,875 using a purchase price of 85% of one year’s
gross fees.”).
Defendants argue that Plaintiff’s alleged loss on accounting services constitutes losses of
prospective economic advantage, unrecoverable as a matter of Idaho law. See Defs.’ Mem. in
Supp. of Mot. for Summ. J., p. 15 (Docket No. 36, Att. 1). Defendants correctly point out that
such damages may not be recoverable under negligence theories. See id. (citing Just’s, Inc. v.
Arrington Const. Co., 583 P.2d 997, 1004 (Idaho 1978) (“As a general rule, no cause of action
lies against a defendant whose negligence prevents the plaintiff from obtaining prospective
economic advantage.”)). But Plaintiff brings both tort and contract claims against Defendants.
MEMORANDUM DECISION AND ORDER - 16
Regardless, Defendants contend that the Policy – even when assuming coverage – does not
recognize Plaintiff’s claimed loss on accounting services as covered “actual loss of business
income.” See id. at p. 16. The Policy pays for the actual loss of business income incurred during
the period that:
(1)
Begins on the date property is actually repaired, rebuilt or replaced and
“operations” are resumed; and
(2)
Ends on the earlier of:
(a)
The date you could restore your “operations” with reasonable
speed, to the condition that would have existed if no direct
physical loss or physical damage occurred; or
(b)
30 consecutive days after the date determined in (a) above.
See Actual Loss Sustained Business Income & Extra Expense - Specified Limit Coverage,
attached as Ex. H to 2/25/11 McGee Aff. at ¶ 9 (Docket No. 36, Att. 2). With this Policy
language in mind, Defendants claim that “[t]he accounts allegedly lost by CatRisk because it
could not pay Mr. Smith a salary did not even exist during the covered period.” See Defs.’ Mem.
in Supp. of Mot. for Summ. J., p. 16 (Docket No. 36, Att. 1). Other than pointing to an absence
of expert testimony from Defendants (see supra at pp. 11-12), Plaintiff’s briefing does not take
issue with this point.8
Because Plaintiff’s alleged loss on accounting services are not covered by the Policy,
there is no foundation to permit the recovery that Plaintiff now seeks through potential lost
revenue and/or clients. Therefore, Defendants’ Motion for Summary Judgment is granted in this
limited respect.
8
During oral argument, Plaintiff’s counsel stated that he had “no counterargument” to
Defendants’ challenge to Plaintiff’s alleged loss on accounting services.
MEMORANDUM DECISION AND ORDER - 17
D.
CatRisk’s Punitive Damages Claim
“A claim for punitive damages cannot be asserted in the claimant’s pleading without the
approval of the trial court.” See Saint Alphonsus Diversified Care, Inc. v. MRI Assocs., LLP, 224
P.3d 1068, 1088 (Idaho 2009). “The claimant must make a pretrial motion and, after a hearing,
the trial court must conclude that the claimant has established a reasonable likelihood of proving
facts sufficient to support an award of punitive damages.” See id. (citing I.C. § 6-1604(2)).
Plaintiff’s Complaint contains a claim for punitive damages. See Pl.’s Compl., p. 14 (Docket
No. 1). Defendants seek to dismiss Plaintiff’s punitive damages claim “[b]ecause [Plaintiff]
failed to abide by Idaho’s pleading standards.” See Defs.’ Mem. in Supp. of Mot. for Summ. J.,
p. 17 (Docket No. 36, Att. 1).
On March 16, 2011, Plaintiff moved to amend his Complaint to add a claim for punitive
damages. See § 6-1604 Mot. for Hearing on Punitive Damages (Docket No. 44). As a
consequence, at oral argument, Defendants withdrew its challenge to Plaintiff’s punitive
damages claim. Therefore, Defendants’ Motion for Summary Judgment is denied as moot in this
limited respect.
E.
Plaintiff’s Claim for Negligent Misrepresentation
While recognizing the viability of a negligent misrepresentation claim generally, the
Idaho Supreme Court has limited its ambit to professional relationships involving an accountant.
See Duffin v. Idaho Crop Improvement Ass’n, 895 P.2d 1195, 1203 (Idaho 1995) (“To further
clarify the matter, we expressly hold that, except in the narrow confines of a professional
relationship involving an accountant, the tort of negligent misrepresentation is not recognized in
Idaho.”); see also Mannos v. Moss, 155 P.3d 1166, 1174 (Idaho 2007) (rejecting plaintiff
MEMORANDUM DECISION AND ORDER - 18
appellant’s contention that tort of negligent misrepresentation should be extended to include
“misrepresentations made by business persons in basic accounting documents, such as financial
statements,” holding: “In Duffin . . ., this Court strictly and narrowly confined the tort of
negligent misrepresentation to professional relationships involving an accountant. This case
does not involve a professional accounting relationship; rather, it involves a business relationship
between a purchaser and a seller. The district court did not err in granting summary judgment on
this claim.”); In re Walter B. Scott & Sons, Inc., 436 B.R. 582, 594 (Bkrtcy. D. Idaho 2010)
(“Under Idaho law, the tort of negligent misrepresentation is strictly and narrowly confined to
professional relationships involving an accountant.”).
Defendants argue that, “[b]ecause Plaintiff failed to plead a professional relationship
involving an accountant, and can demonstrate no such relationship, the court should dismiss
Plaintiff’s claim for negligent misrepresentation.” See Defs.’ Mem. in Supp. of Mot. for Summ.
J., p. 18 (Docket No. 36, Att. 1). The Court agrees. Under Idaho law, an insured’s relationship
with its insurer does not amount to the sort of relationship necessary to support a negligent
misrepresentation claim – more is needed; namely, an accountant/client relationship.
Defendants’ Motion for Summary Judgment is therefore granted in this limited respect.
F.
Defendant Hartford Steam Boiler
Defendants argue that Defendant Hartford Steam Boiler was not in a contractual
relationship with, or in privity with, either Plaintiff or CatRisk and, therefore, cannot be sued on
contract-based claims. See id. (“Because [Hartford Steam Boiler] and CatRisk have no direct
contractual relationship, [Plaintiff] cannot seek damages from [Hartford Steam Boiler] as the
assignee of CatRisk based upon the contract for insurance at issue in this case.”).
MEMORANDUM DECISION AND ORDER - 19
“It is axiomatic in the law of contract that a person not in privity cannot sue on a
contract”; “‘[p]rivity’ refers to ‘those who exchange the [contractual] promissory words or those
to whom the promissory words are directed.” See Wing v. Martin, 688 P.2d 1172, 1177 (Idaho
1984) (citations omitted). At oral argument, Plaintiff’s counsel conceded the absence of privity,
but argued that Defendant Hartford Steam Boiler intentionally interfered with Catrisk’s
contractual relationship (the Policy) with Defendant Hartford Casualty by virtue of Defendant
Hartford Casualty’s contract for reinsurance with Defendant Hartford Steam Boiler and, later
Defendant Hartford Steam Boiler’s investigation of Plaintiff’s/CatRisk’s claim. See supra at p.
2, n.1. The Court disagrees. Plaintiff’s Complaint makes no reference to a claim for intentional
interference with contract. Moreover, Defendants’ counsel admits that Defendant Hartford
Steam Boiler was acting as Defendant Hartford Casualty’s agent during all times relevant to this
action.
Therefore, Defendant Hartford Steam Boiler should be dismissed; Defendants’ Motion
for Summary Judgment is granted in this limited respect.
III. ORDER
Consistent with the foregoing, IT IS HEREBY ORDERED that Defendants’ Motion for
Summary Judgment (Docket No. 36) is GRANTED in part and DENIED in part as follows:
1.
On the issue of the assignment of CatRisk’s claims to Plaintiff, Defendants’
Motion for Summary Judgment is DENIED;
2.
On the issue of Plaintiff’s claims for negligent infliction of emotional distress,
Defendants’ Motion for Summary Judgment is GRANTED;
3.
On the issue of Plaintiff’s alleged “lost compensation” damages, Defendants’
MEMORANDUM DECISION AND ORDER - 20
Motion for Summary Judgment is GRANTED;
4.
On the issue of Plaintiff’s alleged damages for “loss on investment in CatRisk,”
Defendants’ Motion for Summary Judgment is GRANTED;
5.
On the issue of Plaintiff’s alleged damages for “loss on investment in Physicians
Billing and Support Services, Inc.,” Defendants’ Motion for Summary Judgment is GRANTED;
6.
On the issue of Plaintiff’s alleged damages for “loss on investment in Moore
Support Services, Inc.,” Defendants’ Motion for Summary Judgment is GRANTED;
7.
On the issue of Plaintiff’s alleged damages for “loss on accounting services,”
Defendants’ Motion for Summary Judgment is GRANTED;
8.
On the issue of Plaintiff’s claim for punitive damages, Defendants’ Motion for
Summary Judgment is DENIED as moot;
9.
On the issue of Plaintiff’s claim for negligent misrepresentation, Defendants’
Motion for Summary Judgment is GRANTED; and
10.
On the issue of Plaintiff’s contract claims against Defendant Hartford Steam
Boiler, Defendants’ Motion for Summary Judgment is GRANTED.
In light of this Memorandum Decision and Order, on or before August 30, 2011, the
parties are to notify the Court concerning the status of the action – specifically, whether
Defendants’ Motion for Summary Judgment resolves the claims raised in the underlying
///
///
///
///
MEMORANDUM DECISION AND ORDER - 21
Complaint. Unless otherwise notified, the Court will vacate any pending deadlines and enter a
corresponding judgment, consistent with this Memorandum Decision and Order.
DATED: August 22, 2011
Honorable Ronald E. Bush
U. S. Magistrate Judge
MEMORANDUM DECISION AND ORDER - 22
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?