Helms et al v. Nationwide Insurance Company of America
Filing
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MEMORANDUM OPINION AND ORDER: Defendant's 2 Motion to Dismiss Pursuant to Rule 12(b)(7) is DENIED but without prejudice to seek dismissal on the same or different grounds upon further development of the record. Signed by Magistrate Judge Stephanie K. Bowman on 9/12/11. (mtw1)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
WILLIAM HELMS, et al.,
Case No. 1:11-cv-410
Plaintiffs,
Bowman, M.J.
v.
NATIONWIDE INSURANCE
COMPANY OF AMERICA,
Defendant.
MEMORANDUM OPINION AND ORDER
Plaintiffs, William and Gail Helms, initiated suit in state court against their insurer,
Defendant Nationwide Insurance Company of America, for breach of contract and bad
faith. On June 23, 2011, Defendant removed the litigation to this federal Court based
upon the parties’ diversity of citizenship.
On the same date, Defendant moved to
dismiss Plaintiffs’ complaint for failure to join a necessary party under Rule 19, Fed. R.
Civ. P.
On July 18, 2011, the case was transferred to the undersigned magistrate judge
for final disposition, pursuant to the parties’ consent. See 28 U.S.C. §636(c) and Doc.
7. Having completed my review of the pending motion, I now conclude that Defendant’s
motion to dismiss should be denied at this time.
I. Background
Plaintiffs’ claims emanate from a dispute over their underinsured motorist (“UIM”)
policy. On February 23, 2010, Plaintiff William Helms was involved in an automobile
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accident in Hamilton County, Ohio. Plaintiffs allege that the accident was caused by the
negligence of another driver, Joshua Sanders (“the Tortfeasor.”) The Tortfeasor is
alleged to have been insured by Progressive Casualty Insurance Company
(“Progressive”). Neither the Tortfeasor nor Progressive are currently parties to this
litigation.
Mr. Helms sustained serious injuries during the accident, which he asserts
resulted in significant monetary damages.
His wife, Gail Helms, alleges damages
resulting from the loss of her husband’s companionship. (Doc. 3). Plaintiffs had an
active UIM policy (“the policy”) at the time of the accident, which is alleged to include
UIM coverage in the amount of $300,000 per person. (Id.).
While not attached to the complaint, a copy of the policy has been filed as an
exhibit to Defendant’s Reply in Support of Nationwide’s Motion to Dismiss. (Doc. 8-1).
According to that policy, UIM is to be paid to the Plaintiffs upon their completion of the
“Insured Persons’ Duties.” (Doc. 8-1 at 24). The policy states: “After we make payment
under this coverage, we may require the insured to take legal action against any liable
party.” The policy also states that an insured “may bring legal action against the other
party for bodily injury,” and that if the insured does so, he or she must serve Defendant
with copies of any papers served in that litigation. (Id.). The insured must obtain
Defendant’s written consent in order to settle or release any liable party, and must also
“preserve and protect our right to subrogate against any liable party.” (Id.).
The parties represent that the Defendant has advanced $100,000 in coverage to
the Plaintiffs. (Doc. 3, ¶12) That payment was executed pursuant to an agreement
between Plaintiffs and Defendant on March 4, 2010, and represented the limits of the
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liability insurance coverage provided by the Tortfeasor’s policy with Progressive. (Id.;
Doc. 5 at 2).
Although a copy of the March 4 Agreement has not been filed in this
Court, Plaintiffs state that payment was conditioned only upon their agreement to “pay
over” to Defendant any amounts that they may collect from the Tortfeasor. However,
Plaintiffs represent that they “are no longer making a claim against Sanders” based
upon Defendant’s decision to advance the limits of the Tortfeasor’s policy. (Doc. 5 at 3).
Defendant’s motion to dismiss, brought pursuant to Rule 12(b)(7), argues that the
Tortfeasor is a necessary and indispensable party required to be joined under Rule 19
of the Federal Rules of Civil Procedure, such that Plaintiffs’ failure to join him requires
dismissal of all claims in this Court.
II. Analysis
A. Rule 19 Joinder
Under Rule 12(b)(7), Fed. R. Civ. P., Defendant seeks dismissal on grounds that
Plaintiffs have failed to join a necessary party under Rule 19. Fed. R. Civ. P.19(a)
states that a person who is subject to service of process and whose joinder will not
deprive the court of subject-matter jurisdiction “must” be joined if:
(A) in that person’s absence, the court cannot accord complete
relief among existing parties; or
(B) the person claims an interest relating to the subject matter of
the action and is so situated that disposing of the action in the person’s
absence may:
(I) as a practical matter impair or impede the person’s ability
to protect the interest; or
(ii) leave an existing party subject to a substantial risk of
incurring double, multiple, or otherwise inconsistent
obligations because of the interest.
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Id.
Under the rule, federal courts apply a three-step analysis to determine: 1)
whether the absent party is necessary to accord complete relief; 2) if necessary,
whether joinder is feasible; and 3) whether, if joinder would destroy jurisdiction,
dismissal is required after consideration of the equities in the case. See, e.g., Hooper v.
Wolfe, 396 F.3d 744, 747 (6th Cir. 2005); Glancy v. Taubman Centers, Inc., 373 F.3d
656, 666 (6th Cir. 2004) (“Assessing whether joinder is proper under Rule 19 is a threestep process”). Although Rule 19 analysis is based mostly on the structure of the
federal rule, diversity jurisdiction cases require courts to consult an extra source: state
substantive law. See generally Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938);
Hanna v. Plumer, 380 U.S. 460 (1965). In practice, state substantive law affects the
manner in which federal procedural law is applied to the extent that the impact of a
joined or absent party is determined by the claims and remedies provided by state law.
That is not to say, however, that state law drives the Rule 19 analysis. “State law
provides guidance in determining whether the parties have an interest in the litigation,
as defined by Rule 19, but state law is not determinative of the question of whether a
party is necessary or indispensable for purposes of Rule 19.” Hooper, 396 F.3d at 749.
In this case, the analysis begins and ends with the first step required under Rule
19 - examination of the role of the absentee party. A necessary and indispensable party
might be joined to protect the interests of the current parties or to protect his own
interests. See Glancy, 373 F.3d at 669. The latter option is not applicable to the case
at hand since it is in the Tortfeasor’s interest to stay out of this litigation.
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The
Tortfeasor’s direct interest is not at stake because he had motor vehicle insurance with
Progressive at the time of the accident.
Whether the Tortfeasor’s non-joinder affects the current parties requires more
attention. Plaintiffs’ suit seeks to collect UIM coverage allegedly owed to them by the
Defendant. Plaintiffs’ complaint is silent as to any payments made by or sought from
the Tortfeasor or his insurer. Regardless, the Plaintiffs have demonstrated an interest
in collecting their own UIM coverage from the Defendant, not from the Tortfeasor. The
definition of an underinsured motorist, according to the policy, is a motorist who has a
bodily injury policy, but whose “total amount available for payments is less than the
limits of this [the Defendant’s] coverage.” (Doc. 8-1 at 23). By definition of their UIM
coverage, Plaintiffs may make a claim to their policy limits only for damages that exceed
the bodily injury coverage of the Tortfeasor.
However, the inclusion of the Tortfeasor
as a party is not necessary merely to demonstrate the limits of the Tortfeasor’s policy
coverage.
The Defendant has a greater interest in joining the Tortfeasor to the extent that
Defendant presumably may collect, through its subrogation rights, any sum for which
the Tortfeasor may remain liable to the Plaintiffs. The Defendant has already advanced
$100,000 to the Plaintiffs - not under the UIM coverage, but in recognition of the
coverage provided by the Tortfeasor’s liability policy.1 However, Defendant may itself
file a third party complaint against the Tortfeasor to obtain reimbursement of that sum;
1
The Defendant concedes that the policy itself did not require Defendant to advance the tortfeasor’s policy
lim its, but that Defendant did so in recognition of Ohio law that holds that a UIM insurer m ay advance the
tortfeasor’s policy lim its in lieu of granting consent to settle, in order to preserve the insurer’s subrogation
rights. See Borgan v. Progressive Cas. Ins. Co., 36 Ohio St.3d 22, 521 N.E.2d 447 (1988)(overruled in
part on other grounds by Ferrando v. Auto-Owners Mut. Ins. Co., 98 Ohio St.3d 186, 781 N.E.2d 927
(2002)).
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the claim by Plaintiffs against Defendant does not, strictly speaking, require joinder of
the Tortfeasor by Plaintiffs to resolve the more limited dispute concerning coverage
under Plaintiffs’ own UIM policy. (Doc. 5-1). Thus, the Tortfeasor does not appear to
be a necessary party through review of the pleadings alone.
B. Ohio Underinsured Motorist Coverage Statute
Of course, the Court must also review the substantive law of Ohio to determine
whether the Tortfeasor is a necessary and indispensable party to a suit brought by
Plaintiffs against their insurer for UIM coverage. Although the Federal Rules of Civil
Procedure generally apply, state law informs whether the Tortfeasor is a necessary
party where, as here, the claims in question arise exclusively under state insurance law.
Ohio law provides that motor vehicle insurers may, but are not required to, offer
UIM. See Ohio Rev. Code Ann. § 3937.18(A). For insurers who offer it, Ohio law
mandates that UIM coverage:
shall provide protection for insureds thereunder for bodily injury, sickness, or
disease . . . where the limits of coverage available for payment to the insured
under all bodily injury liability bonds and insurance policies covering persons
liable to the insured are less than the limits for the underinsured motorist
coverage.
ORC § 3937.18(C).
In exchange for coverage, Ohio law requires that the insured “shall prove all
elements of the insured’s claim that are necessary to recover from the owner or
operator of the uninsured or underinsured motor vehicle.”
ORC § 3937.18(D).
Defendant’s motion to dismiss argues that this provision of the statute mandates the
inclusion of the negligent driver in any litigation. However, the fact that an insured must
prove that he or she is entitled to recover from the underinsured driver does not require
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that the insured actually file suit against the allegedly negligent driver. Rather, the
Supreme Court of Ohio has held that courts must look to the express terms of the
insurance policy in question to determine the obligations that the insured is required to
fulfill prior to bringing a UIM claim against his or her insurer. See Ponser v. St. Paul Fire
& Marine Insurance Company et al, 104 Ohio St. 3d 621, 625-626, 821 N.E.2d 173
(Ohio 2004)(holding that ORC § 3937.18 itself does not require any specific contractual
terms, and that the policy in question determines the contractual duties of each party).
In Ponser, the insurer had moved for dismissal of its insured’s uninsured motorist
claim on grounds that the insured had failed to first pursue a recovery against the
negligent driver.
Although the negligent driver’s fault was undisputed, the plaintiffs
chose not to seek recovery against the driver because he was judgment proof, in that
he “had no liability insurance policy in effect on the date of the accident, and otherwise
[had] no assets.” Id. at 621, 821 N.E.2d at 174. By the time plaintiffs filed suit against
their own insurer, any claim against the driver was barred by the applicable statute of
limitations. The defendant insurer refused coverage, arguing that the plaintiffs were
required to sue the tortfeasor. The Ohio Supreme Court disagreed, holding that the
plaintiffs were not required to initiate suit against the judgment-proof driver prior to suing
their own insurer for uninsured motorist coverage, because the terms of the policy did
not expressly require it. “[T]he policies employ language establishing that the filing of
suit against the tortfeasor is done at the insured’s discretion or at the insurer’s request,
contradicting any claim that filing a lawsuit is required in order to be ‘legally entitled to
recover’ and thus mandatory for recovery.” Id., 821 N.E.2d at 178.
Only in the case
where a failure to file suit breached a contractual duty - for example, an insured’s duty
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to preserve an insurer’s subrogation rights- could the insured contend that the filing of
suit was a prerequisite to coverage.
Because the facts presented revealed the
tortfeasor to be judgment proof, plaintiffs’ failure to file suit against him “had no
substantive effect on the insurers” and could not be said to be a breach of any
contractual duty under the uninsured motorist policy. Id. at 179.
In Fischer v. United Services Automobile Association, 2004 WL 637881, 2004
Ohio 1682 (Ohio Ct. App., 8th Dist., April 1, 2004), the Ohio Court of Appeals similarly
held that a policyholder could pursue an uninsured motorist claim against his insurer
even though the insured’s suit against the tortfeasor had been dismissed for lack of
prosecution. Citing prior Ohio case law, the Fischer court held that the statutory phrase
“legally entitled to recover” means only “that the insured must be able to prove the
elements of his claim against the tortfeasor,” and not “that damages must actually be
proven in a lawsuit against the tortfeasor.” Id. at *3. “It is the legal entitlement to
recover from an uninsured motorist, not the pursuit of recovery itself, that gives rise to a
claim for ...coverage.” Id. at *4.
Defendant cites language in an earlier and partially overruled case, Bogan v.
Progressive Cas. Ins. Co., 36 Ohio St.3d 22, 28, 521 N.E.2d 447 (1988), in which the
Ohio Supreme Court explained that the court did not mean “to suggest that ...an injured
party may, voluntarily or otherwise, abandon his claim against the tortfeasor or his
insurer and so proceed directly against the underinsured motorist insurer.” The quoted
language, however, has been interpreted as standing for no more than the proposition
that a subrogation clause is reasonably includable - and enforceable- in contracts
providing underinsured motorist insurance.
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The court in Bogan was specifically
addressing policy language that required the insured to exhaust the tortfeasor’s liability
limits “by payment of judgments or settlements” as a precondition to the insurer’s
payment of UIM - a duty that the Ohio court recognized was not otherwise contained in
state law. Id. at 27. When the issue was squarely presented to the Ohio courts in the
later-decided Ponser and Fischer, the state courts held without hesitation that the
injured party is not required to sue the tortfeasor before filing suit against his or her UIM
insurer, unless the failure to sue violates some other contractual provision of the policy
at issue.
C. The Plaintiffs’ Policy
Under Ohio law then, the only question that remains is whether the precise terms
of Plaintiffs’ policy require joinder of the Tortfeasor.
The policy attached to the
Defendant’s Reply Memorandum indicates that the Plaintiffs had paid for UIM coverage
at the time of the accident, with a $300,000 limit per person or per occurrence on UIM.
(Doc. 8-1, at 1-2). The policy requires Plaintiffs to prove that they are “legally entitled to
recover” but as previously discussed, that language alone does not impose a duty to
actually file suit against the tortfeasor.
The “Uninsured Motorists” portion of the policy contains additional requirements
concerning notice to the insurer, including the nature and extent of the injuries. The
insured must also provide all the facts of the accident, answer questions under oath if
required by the Defendant, and submit to an examination by doctors chosen by the
Defendant. (See Doc. 8-1 at 24 for full list of “Insured Person’s Duties.”). The policy
also contains the following “exhaustion” language: “No payment will be made until the
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limits of all other liability insurance and bonds that apply have been exhausted by
payments.” (Doc. 8-1 at 25).
Defendant argues that Plaintiffs’ failure to sue the Tortfeasor violates their duty to
exhaust available remedies from the tortfeasor, similar to the language referenced in
Bogan. However, because the length of time involved in first obtaining relief from the
tortfeasor might otherwise result in the expiration of the statute of limitations on the
insured’s claim for underinsured or uninsured motorist benefits, Ohio courts have
generally construed such exhaustion terms as “conditions precedent to [the insurer’s]
duty to pay UIM benefits, not to [the insured’s] right to file a lawsuit.” See Chalker v.
Steiner, 2009 WL 4755431 at *8 (Ohio Ct. App. 7th Dist., Dec. 8, 2009)(discussing
interplay between statute of limitations provision in UIM policy and exhaustion
language).
Therefore, the exhaustion language does not necessarily bar Plaintiffs’
lawsuit, even though it may impede Plaintiffs’ recovery.
Other provisions also address the amount of money that Plaintiffs may recover.
For example, the policy requires the insured to “repay us out of any recovery for any
payments we [Defendant] have made and any expenses we have incurred in the
action.” (Doc. 8-1 at 24). The policy also states that the limits of UIM “will be reduced
by any amounts available for payment by or on behalf of any liable parties ...including
claims for bodily injury, loss of consortium, injury to the relationship, and any and all
other claims” (Id. at 25).
Again, while obligating the insured to repay the Defendant
any “amounts available” from liable parties, these provisions do not specifically address
the obligation of the insured Plaintiffs to file suit against the Tortfeasor.
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The policy contains only two specific references to filing suit against the
tortfeasor, both of which are expressed in discretionary language. For example, the
policy states that an insured “may bring legal action against the other party for bodily
injury.” (Id. at 24). Clearly, the phrase “may bring legal action” cannot be transformed
into a mandatory duty to file suit.
The second reference in the UIM coverage provision leaves open the possibility
of a required duty to sue, but again, the language is expressed in a discretionary
manner. The policy reads: “After we make payment under this coverage, we may
require the insured to take legal action against any liable party.” (Id., emphasis added).
Thus, the duty only arises “after” the Defendant has paid UIM benefits, and then only if
the Defendant has - in some fashion- made clear that the insured has a mandatory
obligation to sue the negligent driver. In this case, Defendant has failed to demonstrate
that Defendant itself fulfilled either prerequisite to converting Plaintiffs’ otherwise
discretionary decision on whether to sue the Tortfeasor into a mandatory duty. That is,
Defendant has not demonstrated that Defendant has first made “payment under this
[UIM] coverage” (as opposed to advancing payment under the Tortfeasor’s coverage) or
that, after making payment, it clearly directed Plaintiffs to file suit against the Tortfeasor.
The heart of Plaintiffs’ complaint alleges that Defendant has failed to make payment
under the UIM coverage portion of their policy. Absent UIM payment followed by the
insurer taking action to “require” the insured to file suit, the policy leaves to the Plaintiffs’
discretion whether to first file suit against the Tortfeasor. (Doc. 8-1 at 24).
Defendant’s strongest argument relies upon policy language that states that the
insured must preserve the insurer’s subrogation rights, and do nothing to prejudice
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Defendant’s subrogation rights. Plaintiffs are required to “do whatever is proper to
secure such [subrogation] rights, and do nothing to prejudice them.” (Doc. 8-1 at 24).
The policy also contains a general requirement that Plaintiffs “do whatever is necessary
to recover for us payments made under this coverage.” (Id.). However, neither the “do
nothing to prejudice” clause nor the “do whatever is necessary” provision clearly
requires Plaintiffs to file suit against the Tortfeasor, in light of more specific policy
provisions that reflect that the filing of suit is discretionary.
On the other hand, the statement in Bogan that the injured party may not,
voluntarily or otherwise, abandon his claim against the tortfeasor in order to proceed
directly against his own insurer remains true both as a general principle and in the
context of the policy at issue in this case. To the extent that an insured will lose his right
to pursue UIM if, by his activity (i.e., settlement without his insurer’s consent), or
inactivity (i.e., failing to provide timely notice until following the expiration of the statute
of limitations), he fails to preserve the insured’s subrogation rights.
Unfortunately, this Court cannot determine whether Plaintiffs’ failure to file suit
directly against the Tortfeasor has yet prejudiced or impeded the Defendant’s
subrogation rights.
In Ponser, the insurer’s subrogation rights were not impacted
because the tortfeasor was judgment-proof. The Ohio court opined that “when an
uninsured tortfeasor is not judgment-proof, an insurers’ contractual subrogation rights
would be harmed by the failure of an insured to bring a ...claim against the tortfeasor.”
Ponser, 821 N.E.2d at 179. The defendants in Ponser had argued that permitting the
insured to avoid suing the tortfeasor and proceed directly against his insurers would
allow the insured to “thwart the carriers’ subrogation rights,” and would permit “insureds
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to abandon their claims against the wrongdoer and proceed directly against their
[uninsured-motorist] carrier.”
Id.
The Ohio court dismissed any such “parade of
horribles.”
When an insured’s denial of underinsured motorist coverage is premised
on the insured’s breach of a consent-to-settle or other subrogation-related
provision in a policy of insurance, the insurer is relieved of the obligation to
provide coverage if it is prejudiced by the failure to protect its subrogation
rights. An insured’s breach of such a provision is presumed prejudicial to
the insurer absent evidence to the contrary.
Id., 104 Ohio St. 3d at 628, 821 N.E.2d at 179 (emphasis added, quoting Ferrando v.
Auto-Owners Mut. Ins. Co., 98 Ohio St.3d 186, 781 N.E.2d 927 (Ohio 2002)).
The spare record presented to this Court contains no proof at all concerning the
assets of the underinsured Tortfeasor, nor can the Court definitively determine whether
Plaintiffs have ever pursued any claim against the Tortfeasor through settlement.2
Defendant’s motion to dismiss cannot be granted at this time, due to the insufficiently
developed record concerning whether the Tortfeasor is a necessary party.3 Other policy
concerns expressed by the Defendant pertaining to judicial efficiency are simply not
determinative to this Rule 19 analysis. Although the Tortfeasor feasibly could be joined
in this action, the Defendant is not presently entitled to dismissal of Plaintiffs’ claims on
grounds that the Plaintiff was required to join him.
III. Conclusions and Order
I reach the following conclusions based upon Ohio law:
2
W hile not evidence, Plaintiffs’ counsel has represented in a responsive m em orandum that Plaintiffs “are
no longer m aking a claim ” against the Tortfeasor. (Doc. 5 at 3).
3
Although there is no need to reach the issue, both parties agree that the Court would have jurisdiction
over the Tortfeasor because Mr. Sanders is a resident of Ohio.
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1) Defendant has failed to show that Plaintiffs are required to formally file
suit against the Tortfeasor under the UIM statute, case law, or the strict
language of the policy at issue in this case;
2) Plaintiffs’ failure to pursue any claim at all against the Tortfeasor prior
to bringing a claim for UIM would be presumptively prejudicial to the
insurer’s subrogation rights; therefore,
3) Plaintiffs may not completely abandon their claim against the Tortfeasor
in violation of their policy, absent proof that
a) the Tortfeasor is without assets, such that abandonment results
in no prejudice to the Defendant’s rights;
b) they are pursuing their claim in a manner so as to avoid
prejudice (through extrajudicial settlement, for example); or
c) some other circumstance exists that avoids any prejudice
to the Defendant.
In short, although Defendant has failed to prove that it is entitled to dismissal of
all claims under Rule 12(b)(7), it has raised a sufficiently serious issue concerning
whether the Tortfeasor is a necessary party under Rule 19, such that the record must
be further developed. Ohio law supports a finding of presumptive prejudice to the
Defendant’s subrogation rights where an insured fails to pursue any claim against the
tortfeasor prior to suing his or her insurer. Therefore, IT IS ORDERED THAT:
Defendant’s Motion to Dismiss Pursuant to Rule 12(b)(7) is DENIED but without
prejudice to seek dismissal on the same or different grounds upon further development
of the record.
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s/ Stephanie K. Bowman
Stephanie K. Bowman
United States Magistrate Judge
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