Continental Insurance Company, The v. Daikin Applied Americas Inc.
Filing
66
MEMORANDUM OPINION AND ORDER. The Continental Insurance Co.'s Motion to Dismiss for Failure to State a Claim (Doc. No. 46 ) is DENIED. (Written Opinion) Signed by Judge Donovan W. Frank on 1/30/2018. (BJS)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
The Continental Insurance Co.,
Civil No. 17-552 (DWF/HB)
Plaintiff,
MEMORANDUM
OPINION AND ORDER
v.
Daikin Applied Americas Inc.,
Defendant.
Andrea E. Reisbord, Esq., and Jeanne H. Unger, Esq., Bassford Remele; and
Patrick Florian Hofer, Esq., Clyde & Co US LLP, counsel for Plaintiff.
Douglas L. Skor, Esq., John M. Bjorkman, Esq., and Monica Detert, Esq., Larson King,
LLP; and Michael Lamar Jones, Esq., Henry & Jones, LLP, counsel for Defendant.
INTRODUCTION
The plaintiff-insurer filed suit for breach of contract and seeking a declaratory
judgment against the defendant-insured. The insured answered and counterclaimed. The
plaintiff moved the Court to dismiss certain counterclaims and defenses. For the reasons
discussed below, the Court denies the plaintiff’s motion.
BACKGROUND
Plaintiff The Continental Insurance Co. filed suit alleging breach of contract and
seeking a declaration that it was not liable to insure Defendant Daikin Applied Americas,
Inc. From 1973 until 1982, Continental contracted to insure McQuay-Perfex, Inc., a
predecessor to Daikin. On September 24, 2013, Daikin notified Continental that Daikin
had been named a defendant in mass tort asbestos litigation. In April 2014, Continental
told Daikin that it was searching for policies and requested additional information. Then
in June 2014, Continental notified Daikin that it had received notice of only one of the
lawsuits, instead of the twenty-three cases incorporated into the mass litigation. Finally
on June 8, 2015, Continental agreed to defend the asbestos suits with a reservation of
rights.
Between September 24, 2013 and June 8, 2015, Daikin incurred approximately
$680,000 in attorney fees and costs. After Continental agreed to defend Daikin,
Continental sent a check for $645,346.37. Daikin asked for the money to be wired, and
Continental then sent $256,183.61, because Continental determined the remainder was
unrecoverable as pre-tender costs.
After Continental filed suit, Daikin answered and counterclaimed for breach of
contract and declaratory judgment. Continental has moved to dismiss: (1) Daikin’s
defense that Continental waived its claim for breach of contract; (2) Daikin’s
breach-of-contract defense that Continental breached the implied covenant of good faith
and fair dealing; and (3) Daikin’s claim for breach of contract based on a conflict of
interest.
DISCUSSION
I.
Legal Standard
In deciding a motion to dismiss under Rule 12(b)(6), a court assumes all facts in
the complaint to be true and construes all reasonable inferences from those facts in the
light most favorable to the complainant. Morton v. Becker, 793 F.2d 185, 187 (8th
2
Cir. 1986). In doing so, however, a court need not accept as true wholly conclusory
allegations, Hanten v. Sch. Dist. of Riverview Gardens, 183 F.3d 799, 805 (8th
Cir. 1999), or legal conclusions drawn by the pleader from the facts alleged, Westcott v.
City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). A court deciding a motion to
dismiss may consider the complaint, matters of public record, orders, materials embraced
by the complaint, and exhibits attached to the complaint. See Porous Media Corp. v. Pall
Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).
To survive a motion to dismiss, a complaint must contain “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). Although a complaint need not contain “detailed factual allegations,” it must
contain facts with enough specificity “to raise a right to relief above the speculative
level.” Id. at 555. As the Supreme Court reiterated, “[t]hreadbare recitals of the elements
of a cause of action, supported by mere conclusory statements,” will not pass muster
under Twombly. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S.
at 555). In sum, this standard “calls for enough fact[s] to raise a reasonable expectation
that discovery will reveal evidence of [the claim].” Twombly, 550 U.S. at 556.
I.
Waiver and Good-Faith-and-Fair-Dealing Defenses
Continental moves to dismiss 1 Daikin’s affirmative defenses of waiver and breach
of the covenant of good faith and fair dealing. Continental first argues that Daiken’s
1
A motion to strike is the proper mechanism to challenge defenses. See Fed. R.
Civ. P. 12(f); Schlief v. Nu-Source, Inc., Civ. No. 10-4477, 2011 WL 1560672, at *8 (D.
Minn. Apr. 25, 2011). A district court enjoys “liberal discretion” under this rule.
(Footnote Continued on Next Page)
3
defenses fail because they do not meet the Iqbal/Twombly standard. But courts in this
district have concluded that the Iqbal/Twombly standard does not apply to affirmative
defenses. See, e.g., Schlief v. Nu-Source, Inc., Civ. No. 10-4477, 2011 WL 1560672, at
*9 (D. Minn. Apr. 25, 2011); Wells Fargo & Co. v. United States, 750 F. Supp. 2d 1049,
1050 (D. Minn. 2010); 5 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper,
Fed. Prac. & Proc. § 1274 (3d ed. 2017) (noting the split among courts). As a result,
Daikin can adequately plead its defenses by merely listing them. Lasser v. Am. Gen. Life
Ins. Co., Civ. No. 14-3326, 2015 WL 12778004, at *3 (D. Minn. Apr. 3, 2015) (“A party
sufficiently pleads and preserves an affirmative defense by simply identifying the defense
in the party’s responsive pleading.”), report and recommendation adopted,
Civ. No. 14-3326, 2015 WL 12780472 (D. Minn. Apr. 20, 2015); Wells Fargo & Co.,
750 F. Supp. 2d at 1051 (noting that a party usually merely lists its affirmative defenses).
Here, the Court concludes that, having listed the defenses, Daikin has adequately pleaded
waiver and breach of the implied covenant of good faith fair dealing. 2
Nonetheless, Continental argues that the waiver defense fails as a matter of law.
Under Minnesota law, insurers cannot expand coverage by waiving exclusions. Minn.
Commercial Ry. Co. v. Gen. Star Indem. Co., 408 F.3d 1061, 1063 (8th Cir. 2005)
(Footnote Continued From Previous Page)
Stanbury Law Firm, P.A. v. Internal Revenue Serv., 221 F.3d 1059, 1063 (8th Cir. 2000).
However, striking a party’s pleadings “is an extreme measure,” and motions to strike
under Rule 12(f) “are viewed with disfavor and infrequently granted.” Id.
2
Even if, as Continental argues, Daikin’s bad-faith defense is incorporated into
Daikin’s breach-of-contract claim, the Court declines to dismiss the claim at this juncture.
4
(applying Minnesota law). But insurers can waive notice provisions. See Food Mkt.
Merch., Inc. v. Scottsdale Indem. Co., 857 F.3d 783, 788 (8th Cir. 2017) (applying
Minnesota law) (concluding that waiver of notice provisions did not apply in this case).
Here, one of Continental’s breach-of-contract claims is that Daikin failed to
forward “every demand, notice, summons, or other process.” (Doc. No. 42 (“Am.
Compl.”) ¶ 36(a).) Daikin alleges that Continental’s claims are barred in part by waiver.
Thus, Daikin alleges that Continental’s conduct in failing to defend Daikin for two years
constituted a waiver of the notice provisions, which is grounds for one of Continental’s
breach-of-contract claims. Such a defense is cognizable under Minnesota law. See Food
Mkt. Merch., Inc., 857 F.3d at 788. Thus, the Court denies Continental’s motion to
dismiss that defense.
II.
Conflict of Interest
Continental also moves to dismiss Daikin’s claim for breach of contract based on
an alleged conflict of interest. Generally insurers with a duty to defend may control the
litigation, including selecting counsel. See, e.g., Mut. Serv. Cas. Ins. Co. v. Luetmer, 474
N.W.2d 365, 368-69 (Minn. Ct. App. 1991). But when an insurer has a conflict of
interest, the insured has the right to select independent counsel. See, e.g., id. at 368. An
actual conflict of interest must exist, however, rather than merely the appearance of one.
See, e.g., id. A reservation of rights is not a per se conflict of interest. See, e.g., Nat’l
Union Fire Ins. Co. of Pittsburgh, PA v. Donaldson Co., Inc., Civ. No. 10-4948, 2017
WL 3642120, at *9 (D. Minn. Aug. 23, 2017) (“[T]he existence of a reservation of rights
5
did not amount to a per se conflict of interest triggering a duty on AIG’s part to notify
Donaldson of the conflict and its right to independent counsel.”).
Daikin alleges that Continental has a conflict as evidenced by Continental’s
reservation of rights and delay in agreeing to defend Daikin. Given the early stage, the
Court concludes that Daikin has adequately alleged a breach of contract based on a
conflict of interest. While a reservation of rights cannot, by itself, constitute a conflict of
interest, the reservation of rights coupled with the nearly two-year delay raises the claim
beyond the speculative. Thus, the Court denies Continental’s motion to dismiss.
ORDER
Based upon the foregoing, IT IS HEREBY ORDERED that The Continental
Insurance Co.’s Motion to Dismiss for Failure to State a Claim (Doc. No. [46]) is
DENIED.
Dated: January 30, 2018
s/Donovan W. Frank
DONOVAN W. FRANK
United States District Judge
6
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?