Canal Insurance Company v. Montello, Inc.

Filing 103

OPINION AND ORDER by Judge James H Payne ; granting in part and denying in part 60 Motion to Dismiss; granting in part and denying in part 62 Motion to Strike Document(s) (Re: 22 Third Party Complaint, ) (pll, Dpty Clk)

IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF OKLAHOMA
CANAL INSURANCE COMPANY,
Plaintiff/Counter-Defendant,
v.
MONTELLO, INC.
Defendant/Third-Party
Plaintiff/Counter-Claimant,
v.
HARTFORD FINANCIAL SERVICES
GROUP, INC., CONTINENTAL
CASUALTY COMPANY, HOUSTON
GENERAL INSURANCE COMPANY,
NATIONAL INDEMNITY COMPANY,
SCOTTSDALE INSURANCE
COMPANY, & TWIN CITY FIRE
INSURANCE COMPANY,
Third-Party Defendants.

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Case No. 10-CV-411-JHP-TLW

OPINION & ORDER
Before the court is Third-Party Defendant Hartford Financial Services Group, Inc.’s
(“Hartford’s”) Motion to Dismiss Montello, Inc’s Third Party Complaint (Docket No. 60,
hereinafter “Motion to Dismiss”) and Brief in Support (Docket No. 61), Defendant/Third-Party
Plaintiff Montello, Inc.’s Response to the Motion to Dismiss (Docket No. 82), and Hartford’s
Reply to Montello’s Reponse (Docket No. 86). Also before the court is Hartford’s Motion to
Strike Portions of Montello, Inc’s Third Party Complaint (Docket No. 62, hereinafter “Motion to
Strike”), in which Hartford adopts its argument in support for its Motion to Dismiss. The Motion
to Strike is fully briefed, each of the parties relying upon their arguments in support of or against
the Motion to Dismiss. See generally Docket Nos. 83, 87. Therefore, the court’s ruling on the
1

Motion to Strike will mirror its ruling on the Motion to Dismiss. For the reasons cited herein,
Hartford’s Motion to Dismiss and Motion to Strike are DENIED IN PART and GRANTED IN
PART.
FACTS and PROCEDURAL HISTORY
This case was instigated as a declaratory judgment action by Plaintiff/Counter-Defendant
Canal Insurance Company (“Canal”) against Defendant/Counter-Claimant/Third-Party Plaintiff
Montello, Inc. on June 25, 2010. Docket No. 2. Montello responded by filing (a) an Answer to
Canal’s Complaint (Docket No. 20), (b) a counterclaim against Canal for declaratory judgment
and Breach of Contract (Docket No. 21), and (c) a third-party complaint against a number of
third-party defendants, including Hartford and its subsidiary Third-Party Defendant Twin City
Fire Insurance Company (“Twin City”), requesting a declaratory judgment against the ThirdParty Defendants (Docket No. 22). Hartford did not answer the Third-Party Complaint and
instead filed this Motion to Dismiss, pursuant to Fed. R. Civ. P. 12(b)(6). Docket No. 60.
Montello “was a distributor of products used in the oil-drilling industry.” Montello’s
Answer to Canal’s Complaint at 2, Docket No. 20. One product distributed by Montello for a
period of time was “a drilling mud additive that was asbestos.” See id. Montello has now “been
sued by many individuals who were allegedly exposed to asbestos through Montello’s products.”
See id. The parties refer to these numerous lawsuits brought by individuals against Montello as
the “Underlying Litigation.” See, e.g., id. The Underlying Litigation has prompted Montello to
seek liability coverage from the group of insurers involved in this case, most4 of whom are
alleged to have insured Montello during the time period it distributed products containing
asbestos. See Third-Party Complaint at 3-4, 8, Docket No. 22; Counterclaim at 2, Docket No.
4

See infra n.3.
2

21. In essence, this case is one in which the parties are seeking declaratory judgments regarding
which of them, if any, must “foot the bill” for the costly and expansive5 asbestos litigation in
which Montello must defend itself.
Unlike the majority of the insurance companies in this case, Hartford is not alleged to
have insured Montello during the time period that Montello sold products containing asbestos.6
Instead, Montello alleges that Hartford is subject to suit as a result of its ownership of Twin City,
which directly insured Montello between March 1982 and March 1983. See generally ThirdParty Complaint at 9-14, Docket No. 22. To this end, Montello alleges that Twin City is a “mere
5

In its Third-Party Complaint, Montello relates that,
Montello is presently named in hundreds of pending liability suits in various
states, alleging damages, including personal injury, and wrongful death and
other damages, as a result of alleged exposure to products allegedly
manufacturer [sic], distributed, sold or otherwise put into the stream of
commerce by Montello in the State of Oklahoma, and elsewhere. Montello
continues to be sued for liability in Oklahoma and other states. . . . To date,
Montello has incurred substantial damages because of investigating, defending
against, and paying damages resulting from the underlying litigation.
Third-Party Complaint at 7, Docket No. 22.
6
A compilation of Montello’s allegations in the Counterclaim (Docket No. 21 at 2) and ThirdParty Complaint (Docket No. 22 at 8) yields the following schedule for which party insured
Montello at which time:
Time Period

Insurance Company

December 1968 - December 1974

Continental Casualty Company/ “CNA”

December 1978 - March 1981

Houston General Insurance Company

March 1, 1981 - March 1, 1982

Canal Insurance Company

March 1982 - March 1983

Twin City Fire Insurance Company

March 1, 1983 - March 1, 1985

Canal Insurance Company

March 1985 - March 1986

Scottsdale Insurance Company

Third-Party Defendants National Indemnity Company (movant in the Motion for Judgment on
the Pleadings, see Docket Nos. 88, 90, 91) and Hartford (movant in the Motion to Dismiss sub
judice) are not alleged to have directly insured Montello.
3

shell or conduit for its insurance business directed to and derived from Montello’s [sic] and its
other insureds” and that “an injustice will occur if the fiction of corporate separateness between
Hartford and Twin City is not disregarded. See id. at 13. Alternatively, Montello argues that
Hartford is liable for Twin City’s debts based on an agency theory. See id. at 14. Unsurprisingly,
Hartford opposes these propositions, and argues that Montello has failed to state a claim under
the pleading standards delineated in Fed. R. Civ. P. 8(a) and 9(b). See Motion to Dismiss at 7,
Docket No. 60.
DISCUSSION
When considering a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a court must
determine whether the claimant has stated a claim upon which relief may be granted. A motion
to dismiss is properly granted when a complaint provides no “more than labels and conclusions,
and a formulaic recitation of the elements of a cause of action. Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555 (2007). A complaint must contain enough “facts to state a claim to relief that
is plausible on its face” and the factual allegations “must be enough to raise a right to relief
above the speculative level.” Id. (citation omitted). For the purpose of making the dismissal
determination, a court must accept all the well-pleaded allegations of the complaint as true, even
if doubtful in fact, and must construe the allegations in the light most favorable to the claimant.
Id. However, a court need not accept as true those allegations that are conclusory in nature.
Erikson v. Pawnee County Bd. of County Comm’rs, 263 F.3d 1151, 1154-55 (10th Cir. 2001).
Montello makes alternative allegations stating its ability to bring a case directly against Hartford:
(1) that Hartford and Twin City are alter egos of each other, therefore the corporate veil may be
pierced to hold Hartford vicariously liable for any of Twin City’s liabilities (see Third Party
Complaint at 9-14, Docket No. 22), and (2) that Hartford and Twin City are “agents, partners,
4

joint ventures, or co-conspirators of each other” (id. at 14). The court will address these
arguments in turn.
I. Alter-Ego Liability
A. Choice of Law
The first step in any choice of law analysis is to determine whether there is a conflict of
laws. The law of both Indiana, the state in which Twin City is incorporated, and Oklahoma, the
state in which this action was brought, potentially apply to this case. If there is no conflict
between the laws of the two states, the court will apply Oklahoma law. If there is a conflict
between the two laws, the court will look to Oklahoma choice of law rules to determine whether
the application of Indiana or Oklahoma law is appropriate.
Analysis of the laws of Indiana and Oklahoma reveal that there is a conflict of law
between the states regarding the requirements for piercing the corporate veil.7 Oklahoma law
states, “One corporation may be held liable for the acts of another under the theory of alter-ego
liability if (1) the separate existence is a design or scheme to perpetuate a fraud or (2) one
corporation is merely an instrumentality or agent of the other.” Gilbert v. Sec. Fin. Corp. of
Okla., 152 P.3d 165, 175, 2006 OK 58, ¶¶ 22-23 (citing Gibson Prod. Co., Inc. of Tulsa v.
Murphy, 100 P.2d 453, 458, 1940 OK 100, ¶ 36) (emphasis supplied). Oklahoma law also
includes a list of nine factors8 that courts may consider when determining whether to hold one

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Generally, a parent company is not liable for the acts of its subsidiaries. See United States v.
Bestfoods, 524 U.S. 51, 61 (1998). However, under certain circumstances delineated by state
law, parent companies can be held liable for the debts of subsidiaries. This upward transfer of
liability is referred to as “piercing the corporate veil.” Oklahoma and Indiana law provide
different tests for when it is appropriate to “pierce the corporate veil,” and those laws are at issue
in this motion.
8
Under Oklahoma law, “[t]he factors for determining if one corporation may be held liable for
the acts of another . . . . include: (1) whether the dominant corporation owns or subscribes to all
the subservient corporation’s stock, (2) whether the dominant corporation and subservient
5

corporation liable for the acts of another corporation—the factors “hinge primarily on control.”
Id. at 175, 2006 OK 58, ¶ 23 (citing Oliver v. Farmers Ins. Group of Cos., 941 P.2d 985, 987,
1997 OK 71, ¶ 8). As seen supra, Oklahoma law is stated in the disjunctive, requiring either a
showing fraud or that one corporation is merely the instrumentality of another.
In contrast, Indiana law is stated in the conjunctive: a party seeking to pierce the
corporate veil of an Indiana corporation must prove “by a preponderance of the evidence ‘that
[1] the corporate form was so ignored, controlled or manipulated that it was merely the
instrumentality of another, and [2] that the misuse of the corporate form would constitute a fraud
or promote injustice.’” Escobedo v. BHM Health Assocs., Inc., 818 N.E.2d 930, 933 (Ind. 2004)
(citing Aronson v. Price, 644 N.E.2d 864, 867 (Ind. 1994) (citing extensive line of supporting
caselaw)) (emphasis supplied); see also Four Seasons Mfg., Inc. v. 1001 Coliseum, LLC, 870
N.E.2d 494, 504 (Ind. Ct. App. 2007) (“A party seeking to pierce the corporate veil bears the
burden of establishing that the corporation was so ignored, controlled, or manipulated that it was
merely the instrumentality of another and that the misuse of the corporate form would constitute
a fraud or promote injustice.”) (citing Gurnik v. Lee, 587 N.E.2d 706, 710 (Ind. Ct. App. 1992))
(emphasis supplied). Similar to Oklahoma, Indiana law delineates eight “guideposts”9 courts

corporations have common directors and officers, (3) whether the dominant corporation provides
financing to the subservient corporation, (4) whether the subservient corporation is grossly
undercapitalized, (5) whether the dominant corporation pays the salaries, expenses, or losses of
the subservient corporation, (6) whether most of the subservient corporation’s business is with
the dominant corporation or the subservient corporation’s assets were conveyed from the
dominant corporation, (7) whether the dominant corporation refers to the subservient corporation
as a division or department, (8) whether the subservient corporation’s officers or directors follow
the dominant corporation’s directions, and (9) whether the corporations observe the legal
formalities for keeping the entities separate.” Gilbert, 152 P.3d at 175, 2006 OK 58, ¶ 23 (citing
Oliver v. Farmers Ins. Group of Cos., 941 P.2d 985, 987, 1997 OK 71, ¶ 8).
9
The eight factors considered under Indiana law include: “(1) undercapitalization; (2) absence of
corporate records; (3) fraudulent representation by corporation shareholders or directors; (4) use
of the corporation to promote fraud, injustice, or illegal activities; (5) payment by the corporation
6

may consider when determining whether to pierce the corporate veil. Escobedo, 818 N.E.2d at
933 (citing Aronson, 644 N.E.2d at 867).
There is a clear distinction between Oklahoma and Indiana law regarding the piercing of
the corporate veil: Oklahoma law requires the party attempting to pierce the corporate veil to
demonstrate either (1) the corporate scheme is a design to perpetrate a fraud or (2) one
corporation is merely an instrumentality of the other while Indiana law requires the plaintiff to
meet the more onerous standard of demonstrating both (1) one corporation was merely an
instrumentality of another, and (2) the misuse of the corporate form would “constitute a fraud or
promote injustice.” See id.; Gilbert, 152 P.3d at 175, 2006 OK 58, ¶ 22. Montello correctly
states that neither Oklahoma nor Indiana law require the plaintiff to demonstrate fraud because
Oklahoma’s rule is stated in the disjunctive and Indiana law requires an allegation of fraud or
injustice. However, this similarity is insufficient to establish that the laws are “similar” for the
purposes of choice of law standards. Indiana law clearly places upon the party seeking to pierce
the corporate veil the more onerous burden of showing both the “instrumentality” prong of the
test and that the misuse of the corporate form would “constitute fraud or promote injustice.”
This court notes that application of Indiana’s more onerous burden while interpreting a pleading
under Rule 12(b)(6) standards could result in a different outcome, i.e. dismissal of the claim
under Indiana law, and allowing the claim to proceed under Oklahoma law. Because the

or individual obligations; (6) commingling of assets and affairs; (7) failure to observe required
corporate formalities; or (8) other shareholder acts or conduct ignoring, controlling, or
manipulating the corporate form.” Escobedo, 818 N.E.2d at 933 (citing Aronson, 644 N.E.2d at
867).
7

difference between the conjunctive and disjunctive could be dispositive on a 12(b)(6) motion, the
court finds that the laws of Oklahoma and Indiana conflict.10
Having found that the laws of Oklahoma and Indiana conflict, the court’s next step is to
determine which law applies to resolve this motion. In diversity actions, the choice of law is
determined by the law of the forum state, in this case Oklahoma. Elec. Distrib. Inc. v. SFR, Inc.,
166 F.3d 1074, 1083 (10th Cir. 1999) (When “making a choice of law determination, a federal
court sitting in diversity must apply the choice of law of the forum state in which it is sitting.”).
As it appears that Oklahoma courts have not yet determined the issue of what state’s law to apply
when determining whether to pierce the corporate veil, this court must decide the conflict of law
issue as it believes the Oklahoma Supreme Court would decide it. See Wammock v. Celotex
Corp., 835 F.2d 818, 820 (11th Cir. 1988). The Northern District of Oklahoma recently issued an
opinion dealing with the precise issue of how Oklahoma courts would determine the applicable
law when presented with a conflict of law regarding alter-ego liability. See generally Tomlinson

10

To make the argument that the laws of Oklahoma and Indiana are similar, Montello relies on
Yoder v. Honeywell, Inc., a Tenth Circuit case. In Yoder, the Tenth Circuit analyzed whether
Delaware or Colorado law applied to the issue of corporate veil piercing. See Yoder v.
Honeywell, Inc., 104 F.3d 1215, 1220 (10th Cir. 1997). The Tenth Circuit found that the laws of
Delaware and Colorado were similar, despite recognizing that “Delaware may require somewhat
more to pierce a corporate veil.” Id. Delaware law was stated in the disjunctive and did not
require a showing of fraud; plaintiff is required “show fraud or ‘that the parent and the subsidiary
operated as a single economic entity’ and ‘that an overall element of injustice or unfairness’ is
present.” Id. (citing Geyer v. Ingersoll Publications Co., 621 A.2d 784, 793 (Del. Ch. 1992)).
Colorado law listed ten factors to “consider in determining whether subsidiary is instrumentality
of parent” and also required consideration of whether there was an element of injustice. Id.
(citing Lowell Staats Mining Co. v. Pioneer Uravan, Inc., 878 F.2d 1259, 1262 (10th Cir. 1989)).
Yoder is distinguishable in that neither the laws of Delaware nor Colorado involved corporate
veil-piercing tests stated in the conjunctive as Indiana’s is stated. Furthermore, there is no
indication that Delaware’s “somewhat” more burdensome standard would be dispositive to the
court’s ruling. Indiana’s law, requiring the plaintiff to prove that the misuse of corporate
structure constitutes fraud or promotes injustice, when placed in contrast to Oklahoma’s law
which has no such requirement, is substantially more burdensome than Oklahoma law. Yoder
does not apply to the facts of this case.
8

v. Combined Underwriters Life Ins. Co., 2009 WL 2601940 (N.D. Okla.) (unpublished). The
court begins by citing the Restatement (Second) of Conflicts of Laws, which provides: “The
local law of the state of incorporation will be applied to determine the existence and extent of a
shareholder’s liability to the corporation for assessments or contributions and to its creditors for
corporate debts.” See id. at *2 (quoting RESTATEMENT (SECOND) CONFLICTS OF LAWS § 307
(1971)) (noting that “[m]any jurisdictions have cited § 307 as indicating that the law of the state
of incorporation governs veil piercing claims) (collecting cases). This court agrees with the
Tomlinson analysis:
Although . . . Oklahoma courts have not addressed application of § 307 in the
veil-piercing context, Oklahoma courts have previously followed other provisions
of the Restatement (Second) of Conflicts of Laws. . . . Plaintiff has cited no cases
indicating that the Oklahoma Supreme Court would disregard § 307 in
determining which state law to apply. Accordingly, based on citation to
Restatement (Second) of Conflicts of Laws in other circumstances, the Court
finds that the Oklahoma Supreme Court would follow § 307 in holding that the
state of incorporation’s law applies to issues of piercing the corporate veil.
....
Further supporting the Court’s conclusion is the fact that the majority of
jurisdictions addressing this question have also applied the law of the state of
incorporation to veil-piercing issues.
Id. at *2-*3 (citations omitted) (collecting cases). Following the well-reasoned analysis found in
Tomlinson, this court concurs that Oklahoma courts would follow the Restatement (Second) of
Conflicts of Laws § 307, which provides that when a conflict of laws arises with regard to
piercing the corporate veil, the law of the state of incorporation will be applied to determine
whether piercing the corporate veil is appropriate.11 Therefore this court finds that Indiana law

11

This finding comports with United States Supreme Court precedent known as the
“internal affairs doctrine,” which recognizes that “only one State should have the authority to
regulate a corporation’s internal affairs-matters peculiar to the relationships among or between
the corporation and its current officers, directors, and shareholders-because otherwise a
corporation could be faced with conflicting demands.” Id. (citing Restatement (Second) Conflict
of Laws § 302 cmt. b (1971)); see also CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 91
9

applies to determine whether the corporate veil of Twin City, a corporation incorporated under
the laws of Indiana, should be pierced.
B. Applicable Pleading Standard
The next issue to determine is whether, for purposes of the Fed. R. Civ. P. 12(b)(6)
motion sub judice, Montello’s Third-Party Complaint is subject to evaluation under a the
heightened pleading standard pursuant to Fed. R. Civ. P. 9(b). Generally, to bypass a motion to
dismiss based on Rule 12(b)(6), a plaintiff must only make a “short and plain statement” of the
grounds for the court’s jurisdiction and the claim alleged. Fed. R. Civ. P. 8(a)(1-2). However,
when making allegations of fraud or mistake, the pleader “must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Hartford has argued that
Montello has failed to state a claim because it has not complied with the heightened pleading
standard applicable to allegations of fraud pursuant to Rule 9(b).
As noted previously, to pierce the corporate veil under Indiana law, the plaintiff must
show that, “[1] the corporate form was so ignored, controlled or manipulated that it was merely
the instrumentality of another, and [2] that the misuse of the corporate form would constitute a
fraud or promote injustice.” Escobedo v. BHM Health Assocs., Inc., 818 N.E.2d 930, 933 (Ind.
2004). While the conjunctive nature of the test requires the plaintiff to show both elements to
pierce the corporate veil, the plaintiff is not required to specifically plead that the misuse
constituted fraud, because it may alternatively allege that the misuse promoted injustice. See
Fairfield Dev., Inc. v. Georgetown Woods Sr. Apartments Ltd., 768 N.E.2d 463, 473 n.1 (Ind.

(1987) (“It is an accepted part of the business landscape in this country for States to create
corporations, to prescribe their powers, and to define the rights that are acquired by purchasing
their shares.”).
10

Ct. App. 2002) (recognizing that under Indiana law, plaintiff need not state a claim for fraud if it
sufficiently alleges that corporate misuse “promotes injustice”).
Recognizing this distinction in Indiana law, the court in Ketchem v. Am. Acceptance, Co.,
LLC noted that Rule 9(b)’s heightened pleading standard only applies when a plaintiff attempts
to pierce the corporate veil by alleging fraud. See 641 F. Supp. 2d 782, 787 n.1 (N.D. Ind. 2008).
If the plaintiff exclusively attempts to state a claim by alleging that the misuse of the corporate
structure “promotes injustice,” then the heightened pleading standard is inapplicable because
there is no allegation of fraud to invoke Rule 9(b). See id. (“Some jurisdictions apply the
heightened pleading standard of Rule 9(b) where veil piercing claims are based on allegations of
fraud, necessitating the pleading of facts which give rise to a strong inference that the defendant
acted with fraudulent intent. [Plaintiff’s] claims are not premised on fraud and so are subject to
the more lenient pleading requirements of Rule 8(a)(2).”) (internal citation omitted). Like the
plaintiff in Ketchem, Montello has not alleged that Hartford’s misuse of the corporate identity
constituted fraud; it has exclusively based its claim for alter-ego liability on the allegation that
Hartford’s misuse of the corporate form promotes injustice. See Third-Party Complaint at 9-14,
Docket No. 22 (alleging only that “injustice will occur” if Twin City’s corporate veil is not
pierced). Accordingly, Montello’s claim of alter-ego liability is “subject to the more lenient
pleading requirements of Rule 8(a)(2).” See Ketchem, 641 F. Supp. 2d at 787 n.1.
C. Sufficiency of the Pleadings
The final determination to be made with regard to Montello’s claim for alter-ego liability
against Hartford is whether Montello has sufficiently stated a claim under Rule 8(a)(2) pleading
standards and Indiana law. Again, under Indiana law, Montello must plead both prongs of the
test used to determine whether a corporation’s veil may be pierced: first, that “the corporate form
11

was so ignored, controlled or manipulated that it was merely the instrumentality of the other,”
and second, that the “misuse of the corporate form would constitute fraud or promote injustice.”
Escobedo, 818 N.E.2d at 933.
With regard to the first prong of Indiana’s test, Montello alleges that
32.
Hartford and Twin city are alter egos of each other that share a unity of
interest and ownership and operate as a single enterprise for purposes of the
imposition of liability herein . . .
...
b.
Hartford, as Twin City’s ultimate parent company, uses Twin City
as a mere conduit through which it conducts insurance business in states in
which the Hartford is not admitted to conduct any business whatsoever . . .
...
k.
Twin City and Hartford completely disregard appropriate legal
formalities and fail to maintain arm’s length relationships in their dealings
with one another in that Hartford conducts and controls all of the most
basic insurance functions of Twin City with respect to insurance contracts
like the one at issue here (including contract drafting, marketing, sales,
underwriting, claims adjustment, and related litigation), without entering
into any written agreements with Twin City in those regards, and without
any input or approval by Twin City in those regards.
...
p.
By choosing the insureds which [sic] whom Twin City contracts
under Hartford’s policies nominally issued by Twin City, Hartford
effectively controls the premium revenue Twin City will derive from such
policies. By choosing which claims it will honor or reject, Hartford
effectively controls the claim costs that Twin City will incur for claims
made against its insureds under such policies.
...
r.
. . . Hartford, as the parent, dictates every facet of Twin City’s
business, from broad policy decisions to routine matters of day-to-day
operations.
Third-Party Complaint ¶ 32(b), (k), (p), (r), Docket No. 22. Montello has clearly alleged that
Hartford ignores the corporate form such that Twin City is merely an instrumentality of Hartford.
Therefore, the court finds that these allegations are sufficient to state a claim under the first
prong of Indiana’s test.
With regard to the second prong of Indiana’s test, Montello’s allegations are not as clear:
12

32.
Hartford and Twin City are alter egos of each other that share a unity of
interest and ownership . . . .
...
b.
. . . Hartford, as Twin City’s ultimate parent company, uses Twin
City as a mere conduit through which it conducts insurance business in
states in which the Hartford is not admitted to conduct any business
whatsoever, much less admitted to conduct the business of insurance; and
Hartford attempts to shield itself from liability based upon Twin City’s
activities in states in which Twin City engages in the business of insurance
at Hartford’s behest and under its complete domination and control.
...
33.
Upon information and belief, Montello alleges that an injustice will occur
if the fiction of corporate separateness between Hartford and Twin City is not
disregarded. Montello contends that the Court should not permit Hartford to
shield itself from contract liability behind Twin City’s corporate shell, on the
ground that Twin City and not Hartford, is the only nominally named insurer on
the policy.
Id. ¶¶ 32(b), 33 (emphasis added). The sufficiency of these allegations to state a claim for alterego liability is a much closer issue. Because Montello does not allege fraud in the Third-Party
Complaint, these allegations can only be interpreted as an attempt to state a claim under the
“promotes injustice” portion of Indiana law.
In Sea-Land Services, Inc. v. The Pepper Source, the Seventh Circuit interpreted the
meaning of “promotes injustice” within the substantially similar12 corporate veil-piercing law of
Illinois. See generally 941 F.2d 519 (7th Cir. 1991). The court found that merely stating that one
would be unable to fully recover its damages was insufficient to state a claim under the

12

Illinois’ test for piercing the corporate veil states,
a corporate entity will be disregarded and the veil of limited liability pierced when
two requirements are met:
[F]irst, there must be such unity of interest and ownership that the separate
personalities of the corporation and the individual [or other corporation]
no longer exist; and second, circumstances must be such that adherence to
the fiction of separate corporate would sanction a fraud or promote
injustice.
Van Dorn Co. v. Future Chem. & Oil Corp., 753 F.2d 565, 569-70 (7th Cir. 1985) (quoting
Macaluso v. Jenkins, 420 N.E.2d 251, 255 (Ill. App. Ct. 1981)). This test is substantially similar
to that utilized in Indiana, as it contains two similar prongs and is stated in the conjunctive.
13

“promotes injustice prong of the test,” reasoning that if that were sufficient, every claimant for
corporate veil-piercing would satisfy the standard. See id. at 522-23. After a thorough analysis
of existing case law, the Seventh Circuit concluded:
[T]he courts that properly have pierced corporate veils to avoid “promoting
injustice” have found that, unless it did so, some “wrong” beyond a creditor’s
inability to collect would result: [e.g.,] . . . a parent corporation that caused a sub’s
liabilities and its inability to pay for them would escape those liabilities [if the
corporate veil were not pierced] . . .
Id. at 524 (summarizing fact scenario found to “promote injustice” from In re Conticommodity
Servs., Inc., Securities Litigation, 733 F. Supp. 1555, 1565 (N.D. Ill. 1990)). Like the case
referenced in Sea-Land, Montello alleges that Twin City is merely a nominal corporation
operated by Hartford for the purpose of shielding Hartford from liabilities sustained with respect
to Twin City insurance policies. See Third-Party Complaint at 10, 13, Docket No. 22.
Montello’s claims essentially allege that Hartford is misusing Twin City’s corporate form for the
improper purpose of shielding itself from liability for which it is responsible. Such a “wrong” is
a sufficient allegation to state a claim pursuant to Rule 8(a)(2) pleading standards and the second
prong of Indiana’s test.
Therefore, this court finds that Montello has sufficiently pleaded information to support
its claim for alter-ego liability under Indiana law. Accordingly, Hartford’s Motion to Dismiss
Montello’s claim for alter-ego liability, stated in paragraphs 32 and 33 of the Third-Party
Complaint, is DENIED. Further, Hartford’s Motion to Strike paragraphs 32 and 33 of the ThirdParty Complaint is likewise DENIED.
II. Agency Liability
As an alternative to its alter-ego theory of liability, Montello has alleged that “Twin City
and Hartford are agents, partners, joint ventures or co-conspirators of each other and . . . were
14

acting within the scope of its authority as such and with the permission and consent of each of
the other.” Third-Party Complaint ¶ 34, Docket No. 22. Montello concludes that Twin City
acted as Hartford’s agent. Id. To provide a factual basis for this allegation of agency, Montello
essentially alleges the same factual basis as that of its alter-ego claim: that “Hartford, not Twin
City is the actual insurer that engages in the core business of insurance with respect to the policy
at issue” in a manner that involves the misuse of the corporate form. Id.
The court is aware of precedent in which a parent company may be held liable for the
wrongful actions of their subsidiaries based on an agency theory. See, e.g., Esmark, Inc. v. Nat’l
Labor Relations Bd., 887 F.2d 739, 756-757 (7th Cir. 1989) (“[A] parent corporation may be held
liable for the wrongdoing of a subsidiary where the parent directly participated in the
subsidiary’s unlawful actions. . . . [In such cases] [t]he owner’s liability was based on its control
of its subsidiaries’ actions from ‘behind the scenes.’ Thus the parent was not held ‘directly
liable’; it was liable derivatively for transactions of its subsidiary in which the parent interposed
a guiding hand.”) (internal citations omitted). However, such precedent is distinguishable.
The precedent recognizes that a parent company may be held liable for the wrongdoing of
a subsidiary when the parent participated in that wrongful action. In contrast, Montello has
alleged no wrongful action on the part of the subsidiary Twin City. Montello states a claim for
declaratory judgment against Twin City and Hartford, and such action by its very nature
demonstrates that wrongful action on the part of Twin City has yet to take place. If it had,
Montello would assert an action for breach of contract instead of a declaratory judgment. For
this reason, the court finds that Montello has failed to state a claim for relief against Hartford
based on an agency theory.

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Furthermore, analysis of the factual claims alleged in support of Montello’s agency
theory demonstrates that the claim is in fact merely a re-allegation of Montello’s alter-ego claim.
The factual allegations stated by Montello in support of its agency claim are in fact supportive of
a claim for alter-ego liability: Montello essentially alleges that Twin City was merely an
instrumentality of Hartford, and that Hartford utilized the corporate structure of Twin City to
operate in states where Hartford “may not be admitted to conduct insurance business.” See
Third-Party Complaint ¶ 34, Docket No. 22 (generally alleging many of the same facts as are
alleged in Montello’s claim for alter-ego liability, see id. ¶ 32-33). These factual allegations
support a claim for corporate veil piercing, not agency liability. As the court has already
determined that Montello has stated a claim for alter-ego liability against Hartford, the agency
theory is superfluous in addition to failing to state a claim.
Therefore, Hartford’s Motion to Dismiss Montello’s alternative claim against Hartford
based on agency theory, stated in paragraph 34 of the Third-Party Complaint, is GRANTED.
Accordingly, Hartford’s Motion to Strike paragraph 34 of Montello’s Third-Party Complaint is
likewise GRANTED.
CONCLUSION
For the reasons cited herein, Hartford’s Motion to Dismiss (Docket No. 60) is DENIED
IN PART and GRANTED IN PART. Montello’s claim against Hartford based on agency, as
contained in paragraph 34 of the Third-Party Complaint, is DISMISSED. Hartford’s Motion to
Strike (Docket No. 62) is likewise DENIED IN PART and GRANTED IN PART. Paragraph 34
of the Third-Party Complaint is hereby struck from the record.
IT IS SO ORDERED this 30th day of September, 2011.

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