Bartlett Family Real Estate Fund, LLC et al v. Regnier et al

Filing 42

MEMORANDUM AND ORDER granting 30 Motion to Dismiss for Failure to State a Claim. Signed by District Judge Carlos Murguia on 8/9/2013. (mh)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

BARTLETT FAMILY REAL ESTATE
FUND, LLC, et al.,

Plaintiffs,
v.
ROBERT D. REGNIER, et al.,

Defendants.

)
)
)
)
)
)
)
)
)
)
)
)
)
)

Case No. 13-2120-CM-JPO

MEMORANDUM AND ORDER
This matter is before the court on defendant The Zurich Services Corporation, d/b/a Zurich
American Insurance Company (“Zurich”)’s motion to dismiss for failure to state a claim (Doc. 30).
For the reasons stated below, the court grants defendant Zurich’s motion.
I.

Background
In its fifty-count complaint, plaintiffs include a third-party beneficiary claim against defendant

Zurich. Plaintiffs allege that they are entitled to recover under an insurance policy (“Policy”) issued to
Blue Valley Ban Corp. (“Blue Valley”) by Zurich1. Plaintiffs argue that they are third-party
beneficiaries of this Policy. Plaintiffs contend that Blue Valley’s alleged wrongful conduct, including
the alleged rendering or failure to render financial and investment advice to plaintiffs, allows plaintiffs
to recover under the Policy. Plaintiffs reference and quote portions of the Policy in their complaint;

1

It is unclear whether plaintiffs allege that all plaintiffs are third-party beneficiaries under the policy, or only
plaintiffs Ernest J. Straub, III; Richard A. Bartlett; and Foxfield Villa Associates, LLC. Plaintiffs’ complaint
includes paragraphs susceptible of both interpretations. (See, e.g., Doc. 1 at 237, ¶1135; 245, ¶1172.) And the
parties’ briefs do not make this clear. The court takes no position on this point. However, for the sake of clarity,
this order refers generally to plaintiffs regarding the third-party beneficiary claim.

-1-

however, they did not attach a copy of the Policy to their complaint. Defendant Zurich filed an
authentic copy of the Zurich Policy as Exhibit 1 to the Schuletheis Affidavit filed in support of its
motion. Plaintiffs have not disputed the authenticity of the copy of the Policy attached by defendant
Zurich.
II.

Legal Standard
The court will grant a Rule 12(b)(6) motion to dismiss only when the factual allegations fail to

“state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). While the factual allegations need not be detailed, the claims must set forth entitlement to
relief “through more than labels, conclusions and a formulaic recitation of the elements of a cause of
action.” In re Motor Fuel Temperature Sales Practices Litig., 534 F. Supp. 2d 1214, 1216 (D. Kan.
2008). The allegations must contain facts sufficient to state a claim that is plausible, rather than
merely conceivable. Id.
“All well-pleaded facts, as distinguished from conclusory allegations, must be taken as true.”
Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir. 1984); see also Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). The court construes any reasonable inferences from these facts in favor of the plaintiff. Tal v.
Hogan, 453 F.3d 1244, 1252 (10th Cir. 2006). The issue in reviewing the sufficiency of a complaint is
not whether the plaintiff will prevail, but whether the plaintiff is entitled to offer evidence to support
his claims. Ellis v. Isoray Med., Inc., No. 08-2101-CM, 2008 WL 3915097, at *1 (D. Kan. Aug. 22,
2008) (citation omitted).
“A court may ‘consider documents referred to in the complaint if the documents are central to
the plaintiff’s claim and the parties do not dispute the documents’ authenticity.’” Tilley v. Maier, 495
F. App’x 925, 927 (10th Cir. 2012) (quoting Smith v. United States, 561 F.3d 1090, 1098 (10th Cir.
2009)). Further, “if a plaintiff does not incorporate by reference or attach a document to its complaint,

-2-

but the document is referred to in the complaint and is central to the plaintiff’s claim, a defendant may
submit an indisputably authentic copy to the court to be considered on a motion to dismiss.” GFF
Corp v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir. 1997) (citations omitted).
III.

Discussion
The court considers the Policy attached by defendant Zurich because plaintiffs refer to the

Policy in their complaint and it is central to plaintiffs’ third-party beneficiary claim against defendant
Zurich. In addition, plaintiffs have not disputed the authenticity of the copy of the Policy. Plaintiffs
claim that the following language in the “Broker Services Liability” provision of the Policy shows an
express intention that they are third-party beneficiaries to the Policy and are thus entitled to recover
under the Policy:
The Insurer shall pay on behalf of the Insureds all Loss for which the Insureds become
legally obligated to pay on account of a Claim for a Wrongful Act in connection with
the rendering of or failure to render Broker Services.
(Doc. 32-2 at 51, Section I.B (emphasis added).) The Policy defines “Loss” as the “total
amount the Insureds become legally liable to pay on account of Claims made against them for
Wrongful Acts for which coverage applies, including, but not limited to, damages . . .
judgments, any award of pre-judgment and post-judgment interest . . . settlements, . . . and civil
money penalties assessed against an Insured Person . . . .” (Id. at 52, Section II.D.) The parties
dispute whether the “legally obligated to pay” language requires a determination of liability
before plaintiffs may bring suit against defendant Zurich.
Contract interpretation, including interpretation of an insurance policy, is a question of
law. See AMCO Ins. Co. v. Beck, 929 P.2d 162, 165 (Kan. 1996). Unless the parties indicate
otherwise, under Kansas law, terms in an insurance contract are to be given their ordinary
meaning. Hartford Fire Ins. Co. v. Vita Craft Corp., 911 F. Supp. 2d 1164, 1176 (D. Kan.

-3-

2012) (citing Pink Cadillac Bar & Grill, Inc. v. U.S. Fid. & Guar. Co., 925 P.2d 452, 456 (Kan.
Ct. App. 1996)). If an insurance policy is unambiguous, the court enforces the policy as
written. Id. In determining whether an ambiguity exists, the court looks not at what the insurer
intended the language to mean, but what a reasonably prudent insured would understand the
language to mean. Id.
The majority of the briefing by both parties focuses on whether Kansas law allows
direct actions against insurers prior to a determination of liability against an insured.2 The
court does not reach this issue because the language of the Policy is dispositive. Here, the plain
language of the Policy states that the Insurer (defendant Zurich) shall pay on behalf of the
Insureds (defendant Blue Valley) all loss for which defendant Blue Valley becomes “legally
obligated to pay.” The phrase “legally obligated to pay” is undefined in the Policy. Based on
the plain meaning of the phrase “legally obligated to pay,” the court finds that some
determination of liability is required against defendant Blue Valley before plaintiffs can bring
suit against defendant Zurich. See Aks v. Southgate Trust Co., 844 F. Supp. 650, 656 (D. Kan.
1994) (analyzing a similar definition of “Loss,” and finding that the term “legally obligated to
pay” encompasses a duty to pay settlements and judgments).
In addition, the Policy’s definition of “Loss” also uses the “legally obligated to pay”
language and describes “damages,” “judgments,” “pre-judgment and post-judgment interest,”
“settlements,” and “civil money penalties” as types of Loss for which the Insurer shall pay on
behalf of the Insured. (Doc. 32-2 at 52, Section II.D.) These terms also indicate that some

2

Defendant Zurich argues that absent a statute or insurance provision authorizing direct actions, Kansas law
prohibits direct actions against insurers before a determination of liability against an insured. Plaintiffs’ response
argues that there is no per se rule against third-party beneficiary claims brought against insurers. Defendant
Zurich agrees there is no per se rule, and clarifies its position that Kansas law prohibits direct actions by third
party beneficiaries against an insurer before liability has been determined.

-4-

determination of liability against defendant Blue Valley must be made before defendant Zurich
must pay on behalf of defendant Blue Valley.
Plaintiffs argue that because the Broker Services Liability portion of the Policy defines
“Claim” to include “a written demand . . . for monetary damages” that filing suit alone is
enough to trigger defendant Zurich’s duty to pay. (Doc. 32-2 at 51, Section II.A.) Plaintiffs
also argue that defendant Zurich incurred a “legal obligation” to pay plaintiffs when the
Insureds allegedly rendered and failed to render financial and investment advice to plaintiffs.
However, the Broker Services Liability provision states that the Insurer will pay “all Loss for
which the Insureds become legally obligated to pay on account of a Claim.” (Id. at 51, Section
I.B (emphasis added).) The Policy does not state that the Insurer will pay for all Claims
without any Loss. And because “Loss” is defined to include “damages,” “judgments,”
“settlements” and similar terms, the simple filing of a lawsuit—or rendering/non-rendering of
financial and investment advice—does not trigger a legal obligation to pay under the Policy.
Further, plaintiffs cite cases holding that a judgment is not necessary to determine an
insured is “legally obligated to pay.” See, e.g., Potomac Ins. of Ill. v. Huang, No. 00-4013JPO, 2002 WL 418008, at *10 (D. Kan. Mar. 1, 2002) (finding that a settlement was a
sufficient determination of liability to establish a “legal obligation to pay”). Defendant Zurich
does not argue that a judgment is required. But it does argue that a settlement or some other
determination of liability is required to trigger defendant Zurich’s duty. Based on the plain
language of the Policy, this court agrees.3
3

Although plaintiffs’ response to defendant Zurich’s motion focuses on multiple provisions of coverage under the
Policy, plaintiffs’ complaint cites only the “Broker Services Liability” clause. Therefore, defendant Zurich’s
motion to dismiss addressed only that clause. Plaintiffs’ response argues that their general allegation in their
complaint regarding “provisions within the Policy” indicates that they have claims under multiple provisions of the
Policy, despite their specific reference only to the “Broker Services Liability” provision. The court will address
only claims raised in the complaint, and thus only addresses the “Broker Services Liability” provision.
Regardless, the same “legally obligated to pay” language is at issue.

-5-

Before a determination of liability, defendant Blue Valley has no legal obligation to pay
plaintiffs. As such, plaintiffs have no claim against defendant Zurich before a determination of
liability is made against defendant Blue Valley. Therefore, plaintiffs have failed to state a
claim against defendant Zurich. Defendant Zurich’s motion to dismiss is granted.
IT IS THEREFORE ORDERED that Defendant Zurich’s Motion to Dismiss (Doc. 30) is
granted.
Dated this

9th

day of August, 2013, at Kansas City, Kansas.

s/ Carlos Murguia
CARLOS MURGUIA
United States District Judge

-6-