Century Indemnity Company v. The Marine Group, LLC et al

Filing 145

OPINION AND ORDER - LMI's motion 119 to dismiss is GRANTED without prejudice with leave for third-party plaintiffs to replead. Signed on 9/29/09 by Magistrate Judge John V. Acosta. (peg)

IN T H E UNITED STATES DISTRICT C O U R T F O R T H E D I S T R I C T OF O R E G O N

C E N T U R Y INDEMNITY COMPANY, a P e n n s y l v a n i a Corporation, Plaintiff,

Civ. No.08-1375-AC OPINION AND ORDER

v.
T H E M A R I N E G R O U P , LLC, a California l i m i t e d l i a b i l i t y c o m p a n y , as a f f i l i a t e d w i t h N O l i h w e s t M a r i n e , Inc.; N O R T H W E S T M A R I N E , INC., a n i n a c t i v e O r e g o n c o r p o r a t i o n , as a f f i l i a t e d w i t h N O l i h w e s t M a r i n e Iron Works; N O R T H W E S T M A R I N E I R O N W O R K S , an i n a c t i v e Oregon corporation,

Defendants. T H E M A R I N E GROUP, LLC, a California l i m i t e d l i a b i l i t y c o m p a n y , as a f f i l i a t e d w i t h N o r t h w e s t M a r i n e , Inc.; N O R T H W E S T M A R I N E , INC., an i n a c t i v e O r e g o n

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corporation, as affiliated w i t h Northwest M a r i n e I r o n Works; N O R T H W E S T M A R I N E I R O N W O R K S , an inactive O r e g o n cOlporation; a n d B A E S A N D I E G O SHIP R E P AIR, INC., a California corporation, T h i r d - P a r t y Plaintiffs,

v.
AGRICULTURAL INSURANCE C O M P A N Y , an Ohio corporation; AMERICAN CENTENNIAL INSURANCE C O M P A N Y , a D e l a w a r e corporation; CHICAGO I N S U R A N C E C O M P A N Y , an I l l i n o i s cOlporation; C O N T I N E N T A L I N S U R A N C E C O M P A N Y , a Pel1l1sylvania corporation; E M P L O Y E R S M U T U A L C A S U A L T Y C O M P A N Y , an I o w a corporation; F E D E R A L I N S U R A N C E C O M P A N Y , an Indiana corporation; GRANITE S T A T E I N S U R A N C E C O M P A N Y , a P e n n s y l v a n i a corporation; HARTFORD INSURANCE COMPANY, a C o n n e c t i c u t corporation; I N S U R A N C E COMPANY OF THE STATE OF PENNSYLVANIA, a N e w Jersey corporation; I N S U R A N C E C O M P A N Y OF N O R T H A M E R I C A , a Pel1l1sylvania corporation; C E R T A I N U N D E R W R I T E R S A T L L O Y D ' S , LONDON, and CERTAIN LONDON MARKET INSURANCE C O M P A N I E S , e a c h a f o r e i g n corporation; NATIONAL UNION F I R E INSURANCE COMPANY OF PITTSBURGH, a Pe11l1sylvania corporation; N E W ENGLAND R E I N S U R A N C E COMPANY, a Connecticut corporation; O L D REPUBLIC I N S U R A N C E C O M P A N Y , an Illinois corporation; P A C I F I C M U T U A L M A R I N E O F F I C E INC., a N e w Y o r k c o r p o r a t i o n ; R E L I A N C E I N S U R A N C E COMPANY, a OPINION AND O R D E R 2 {KPR}

Peillisylvania corporation; R O Y A L INDEMNITY COMPANY, a Delaware c o r p o r a t i o n ; ST. P A U L F I R E & M A R I N E I N S U R A N C E COMPANY, a Minnesota corporation; T W I N C I T Y F I R E I N S U R A N C E COMPANY, an Indiana corporation; W A T E R Q U A L I T Y I N S U R A N C E S Y N D I C A T E , a syndicate o f foreign corporations; W E S T C O A S T M A R I N E M A N A G E R S , INC., a N e w Y o r k c o r p o r a t i o n ; and J O H N D O E I N S U R A N C E COMPANIES, Third-P m i y Defendants. A C O S T A , M a g i s t r a t e Jndge:

In traduction
c., NOlihwest M a r i n e T h i r d - p a r t y p l a i n t i f f s t h e M a r i n e Group, L L C , N o r t h w e s t M a r i n e , In ly " t h i r d - p a r h'on Works, and B A E Systems S a n Diego Ship Repair, Inc. (collective d e f e n d a n t s i n t h e p r e s e n t action, and a s s e l i a t h i r d - p m i y c o m p l a i n t a g a t y p l a i n t i f f s " ) are

inst various entities including

and Certain London Market t h e t h i r d - p a l i y defendants C e l i a i n Underwriters at L l o y d ' s L o n d o n t y p l a i n t i f f s s e e k declaratory I n s u r a n c e C o m p a n i e s ( c o l l e c t i v e l y "LMI"). Specifically, t h i r d - p a r j u d g m e n t r e g a r d i n g t h e r i g h t s a n d liabilities o f t h e p a r t i e s w i t h r e s p e c t to insurance policies. ThirdM!. L M I

-party defendants, L p a r t y p l a i n t i f f s also a s s e r t a b r e a c h o f c o n t r a c t c l a i m a g a i n s t t h e t h i r d

a claim for relief, pursuant to moves for dismissal o f t h e b r e a c h o f contract claim for failure to state Federal R u l e o f Civil Procedure ("Rule") 12(b)(6).1

II
t for attorney fees T h e y also m o v e f o r d i s m i s s a l o f t h e t h i r d - p a r t y p l a i n t i f f s ' r e q u e s , t h i r d - p a r t y p l a i n t i f f s agreed a s s o c i a t e d w i t h i t s c l a i m s for d e c l a r a t o r y j u d g m e n t . I n t h e i r r e s p o n s e and, t h u s , t h e c o u r t s t r i k e s the that t h e y are n o t entitled to attomey fees associated w i t h those claims request for said attorney fees from t h e complaint.
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Factual Background
d-party plaintiffs, as The facts are taken, as true, from t h e pleading i n question. Thir defendants to t h e underlying action, have and will incur substantial liti g a t i o n e x p e n s e s a r i s i n g from

i n c u r substantial liabilities defense o f the underlying action. Third-patty plaintiffs m a y also al l i a b i l i t i e s upwards o f $ 5 0 0 associated w i t h the Portland H a r b o r Superfund Site. They anticipate tot allocated among a group o f million associated w i t h the Superfund Site. This amount will b e -party plaintiffs. L M I is p o t e n t i a l l y r e s p o n s i b l e p a t t i e s , i n c hiding t h o s e w h o c o m p r i s e t h i r d i n t i f f s h a v e defense and/or comprised o f s o m e o f several insurers w i t h w h o m third-party p l a i n d e m n i t y p o l i c i e s i n comlection w i t h t h e u n d e r l y i n g policies. T h e b r e a c h o f c o n t r a c t c l a i m i n c l u d e s t h e following s p e c i f i c a l l e g a t i o n s . F i r s t , i t is a l l e g e d

or d e f e n d i n g t h e u n d e r l y i n g that the third-party plaintiffs have and will continue to i n c u r costs f ges i n connection w i t h such a c t i o n s a n d f u t u r e a c t i o n s , a n d a n t i c i p a t e s i n c u n i n g l i a b i l i t y for d a m a t ] h i r d - p a t t y defendants h a v e actions. (McCarthy Dec!., Ex. A at ~64.) Second, it is alleged that "[ ants will continue to breach, b r e a c h e d , and t h i r d - p a r t y p l a i n t i f f s a n t i c i p a t e t h a t t h i r d - p a t t y d e f e n d r o v i d e coverage for c o s t s o f t h e i r r e s p e c t i v e o b l i g a t i o n s for c l a i m s . . . i n w r o n g f u l l y r e f u s i n g t o p u l t o f third-party d e f e n d a n t s ' defense o r indemnity." [d. at ' \ 6 5 . Third, it is alleged that " [ a]s a res a c t u a l and p r o s p e c t i v e o r a n t i c i p a t e d b r e a c h e s o f t h e i r c o n t r a c t u a l o b l igations u n d e r the insurance

ure . . . . " [d. at ~ 66. policies, third-party defendants are liable, and will b e liable i n the fut

L e g a l Standard
e C o u r t addressed t h e I n Bell Atlantic CO/po v. Twombly, 550 U.S. 544 (2007), t h e Suprem p l e a d i n g s t a n d a r d to a d e q u a t e l y s t a t e a c l a i m u n d e r t h e F e d e r a l R u l e s o f Civil Procedure. Rule 8(a)

i m s h o w i n g that t h e p l e a d e r g o v e r n s p l e a d i n g s a n d c a l l s for " a s h o r t a n d p l a i n s t a t e m e n t o f t h e c l a OPINION AND O R D E R 4 {KPR}

o u r t e x p l i c i t l y d e p a r t e d fium is entitled to r e l i e f . . . . " FED. R. CIY. P. 8(a) (2009). I n 2007, the C 7). T h e C o n l e y s t a n d a r d h e l d the often cited standard set forth in Conley v. Gibson, 355 U.S. 41 (195 t h a t " a c o m p l a i n t s h o u l d n o t b e d i s m i s s e d for f a i l u r e t o s t a t e a c l a i m u nless i t appears b e y o n d d o u b t

h w o u l d entitle h i m to relief." that t h e p l a i n t i f f can prove no set o f facts i n SUppOlt o f his claim w h i c d i n g standard, a n d indicated l d . a t 4 5 - 4 6 . T h e T w o m b l y c o u r t r e j e c t e d t h i s as a n i n a p p r o p r i a t e p l e a t h a t i t h a d b e e n t a k e n o u t o f its o r i g i n a l c o n t e x t and s h o u l d b e " f o r g o t t e n as a n i n c o m p l e t e , n e g a t i v e

tated adequately, i t m a y b e g l o s s o n a n a c c e p t e d p l e a d i n g standard: o n c e a c l a i m h a s b e e n s i n t h e c o m p l a i n t . " 5 5 0 U.S. s u p p o r t e d b y showing any s e t o f facts consistent w i t h t h e allegations a t 563. N o t only did Twombly depart fi'om the previous standard, i t emphasiz e d t h e n e e d to include

ts b a s i s : " W h i l e a c o m p l a i n t sufficient facts i n the pleading to give proper notice o f t h e claim and i attacked b y a R u l e 12(b)(6) m o t i o n to dismiss does not need detailed fa ctual a l l e g a t i o n s , a p l a i n t i f f s

q u i r e s m o r e t h a n labels a n d o b l i g a t i o n to provide the ' g r o u n d s ' o f h i s ' e n t i t l e m e n t to r e l i e f re c o n c l u s i o n s , and a f o r m u l a i c r e c i t a t i o n o f t h e e l e m e n t s o f a c a u s e o f a ction w i l l n o t d o . " !d. at 555 even i f it

plaint m a y p r o c e e d (brackets omitted). E v e n so, t h e court noted that " a well-pleaded com

and ' t h a t a recovelY is velY strikes a savvy j u d g e that actual p r o o f o f those facts is improbable, .S. 2 3 2 , 2 3 6 (1974)). r e m o t e and unlikely.'" !d. at 556 (quoting Scheuer v. Rhodes, 416 U a r d announced th Since Twombly, the Supreme Court made clem' that t h e pleading stand is generally applicable to cases governed b y the Federal Rules o f Civil c a s e s i n v o l v i n g a n t i t r u s t allegations. nces does not A s the C o u r t held in Twombly, the pleading standard R u l e 8 amlOu a d o r n e d , ther e q u i r e " d e t a i l e d factual a l l e g a t i o n s , " but i t d e m a n d s m o r e t h a n an u n rs " l a b e l s a n d d e f e n d a n t - u n l a w f u l l y - h a r m e d - m e a c c u s a t i o n . A p l e a d i n g that o f f e OPINION AND O R D E R erein

Procedure, a n d n o t j u s t those

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conclusions" o r " a formulaic recitation o f t h e elements o f a cause o f a

ction w i l l n o t

do."
q u o t i n g Twombly, 5 5 0 U . S . Ashcroft v. Iqbal, _ U . S . _ , 1 2 9 S.Ct. 1937, 1949 ( M a y 18, 2009) (

hase & Co., No. C 09-00261 at 555) (internal citations omitted); see also Villegas v. J.P Morgan C
9 ) ( " T h e T w o m b l y standard, SBA, 2009 U.S. Dist. LEXIS 19265, at *7-8 (N.D. Cal. Mar. 6 , 2 0 0 moreover, is o f general application and i s as easily applied to w a g e and T h e C o u r t w e n t o n t o i d e n t i f y two p r i n c i p l e s i n f o r m i n g t h e d e c i s i o n i n h o u r litigation as antitrust.").

Twombly. T h e first was that,

i t n e e d n o t accept as true any although the court must assume t r u e all facts asserted i n a pleading, s that the complaint set forth legal conclusions s e t f01ih i n a pleading. T h e second principle require ief. T h e C o m i a d v i s e d t h a t a plausible claim for r e l i e f and not m e r e l y a possible claim for rel " [ d ] e t e r m i n i n g w h e t h e r a c o m p l a i n t s t a t e s a p l a u s i b l e c l a i m for r e l i e f w i l l . . . b e a context-specific

r i e n c e a n d c o m m o n sense." task that requires the reviewing c o m i to draw o n its j u d i c i a l e x p e 5 7 - 1 5 8 (2nd Cir. 2007)). I n Ashcroft, 129 S. Ct. a t 1949-50 (citing Iqbal v. Hasty, 490 F . 3 d 1 4 3 , 1 e fi'amework o f a c o m p l a i n t , c o n c l u s i o n , t h e C o m t w r o t e : " W h i l e legal c o n c l u s i o n s c a n p r o v i d e t h p l e a d e d f a c t u a l allegations, a t h e y m u s t b e s u p p o r t e d b y factual allegations. W h e n t h e r e are w e l l ey p l a u s i b l y give rise to an c o u r t s h o u l d a s s u m e t h e i r v e r a c i t y and t h e n d e t e l m i n e w h e t h e r t h entitlement to r e l i e f " Id. at 1950.

Discussion
T h i s m o t i o n a n d t h e r e s u l t i n g b r i e f i n g p r e s e n t t w o q u e s t i o n s for d e t e r (1) w h e t h e r t h e t h i r d - p a r t y c o m p l a i n t , t h e m o t i o n t o dismiss, o r b o t h , w mination by the court:

e r e p r e m a t u r e l y p l e a d e d and arty

t e l y p l e a d e d i n the t h i r d - p filed, respectively, and (2) i f the b r e a c h o f contract claim w a s appropria complaint.

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.L

T i m e l i n e s s o f the Third-party Complaint and M o t i o n to D i s m i s s E a c h p a r t y m a i n t a i n s t h a t the o t h e r ' s p r o c e d u r a l a c t i o n i s p r e m a t u r e . L M I argues t h a t the

third-party complaint, to the extent that it alleges a claim o f b r e a c h o f contract, is premature. This b e c a u s e , a c c o r d i n g t o L M I , u n t i l t h e u n d e r l y i n g l i a b i l i t i e s are d e t e r m i n e d , i . e . , t h e n a t u r e a n d c o n t e n t o f t h e i n s u r a n c e p o l i c i e s a t i s s u e , the c o u r t c a n n o t e v a l u a t e w h e t h e r o r n o t a b r e a c h h a s p l a u s i b l y occurred. Furthermore, b y failing to give LMI notice o f t h e alleged breach, third-party plaintiffs did n o t allow LMI to p e r f o r m an investigation into w h a t coverage a n d w h a t duties w e r e o w e d to thirdp a r t y plaintiffs. T h i r d - p a r t y p l a i n t i f f s claim t h a t L M I ' s m o t i o n i s p r e m a t u r e u n d e r t h e t e r m s o f t h e courto r d e r e d j o i n t c a s e m a n a g e m e n t o r d e r a n d b a s e d o n a n e x c h a n g e o fi n c o m p l e t e i n f o r m a t i o n t h a t t h i r d p a r t y p l a i n t i f f s d i d n o t understand would f0I111 the basis o f a m o t i o n to dismiss. T h e j o i n t case m a n a g e m e n t o r d e r , f i l e d o n J u l y 7 , 2 0 0 9 , p r o v i d e d t h a t t h e first p h a s e o f d i s c o v e r y w o u l d b e c o m p l e t e d D e c e m b e r 1 5 , 2 0 1 0 , u n l e s s o t h e r w i s e ordered, a n d is f o r t h e p u r p o s e o f i d e n t i f y i n g a n d r e s o l v i n g t h e e x i s t e n c e o f i n s u r a n c e p o l i c i e s , i f any, a n d t h e i r terms, . . . , a n d a n y additional i n s u r a n c e p o l i c i e s w h i c h m i g h t c o v e r c l a i m s i n this action b y defendants and third-party plaintiffs, and t h e legal entitlement, i f any, o f defendants a n d third-party plaintiffs to c l a i m benefits thereunder. ( J o i n t C a s e M a n a g e m e n t Order, D o c k e t No. 127 at 3-4.) Thus, according to third-party plaintiffs, L M I ' s m o t i o n to dismiss is contrary to this schedule and, thus, premature. L M I points out that its m o t i o n to dismiss w a s filed three weeks p r i o r to the order. Procedurally, as a legal matter, L M I ' s m o t i o n to dismiss is n o t p r e m a t u r e and the fact t h a t the p a r t i e s agreed s u b s e q u e n t l y to conduct discovery i n a particular matmer does n o t necessarily r e n d e r i t p r e m a t u r e . R a t h e r , LMI, u p o n b e i n g s e r v e d w i t h a c o m p l a i n t a l l e g i n g c l a i m s a g a i n s t i t w a s entitled to respond to t h o s e claims as i t s a w fit. Similarly, third-party p l a i n t i f f s ' b r e a c h o f contract

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claim against L M I i s n o t premature either, as a matter o f law. Provided that third-party plaintiffs' c l a i m s are p r o p e r l y p l e a d e d , t h e y m a y allege a n y claims t h e y h a v e a g a i n s t t h i r d - p a t i y defendants. 2. Sufficiency o f P l e a d i n g T h e p a r t i e s a g r e e t h a t t h e f u l l e x t e n t o f t h e u n d e r l y i n g c o v e r a g e h a s n o t y e t b e e n determined. E v e n so, t h i r d - p a r t y p l a i n t i f f s s u b m i t t e d e v i d e n c e s u g g e s t i n g t h a t t h e p a r t i e s e n t e r e d into p o l i c i e s that p r o v i d e d for b o t h p r i m a t y and excess coverage. This evidence is extrinsic and, thus, irrelevant t o t h e c o u r t ' s analysis. F u r t h e r m o r e , r e g a r d l e s s o f w h a t t h e u n d e r l y i n g r i g h t s a n d d u t i e s o f the respective parties are, no facts were pleaded detailing the alleged claim o r t h e refusal to perform b y L M I r e s u l t i n g i n L M I ' s a l l e g e d breach. T h u s , i t is u n d i s p u t e d a t t h i s s t a g e t h a t t h i r d - p a r t y p l a i n t i f f s d i d n o t a c t i n s u c h a w a y as t o t r i g g e r p e r f o r m a n c e o f L M I ' s d u t i e s , w h a t e v e r t h e y m a y b e . F o r p u r p o s e s o f t h i s m o t i o n , no b r e a c h has b e e n effectively pleaded. T h e r e l e v a n t c a s e l a w s u p p o r t s L M I ' s p o s i t i o n , r e g a r d l e s s o f t h e type o f p o l i c y i n q u e s t i o n . First, i f t h e p a t i i e s entered into an excess insurance policy, i.e., t h e i n s u r e r s ' duty to p a y is triggered only after the primary policies h a v e b e e n exhausted, the breach o f contract c l a i m m a y b e pleaded as o n e o f anticipatOlY breach. I n order to adequately plead such a claim, i t m u s t b e alleged that the breaching party h a s "refuse[d] b y acts o r deeds [to] perform [its] obligations u n d e r the contract positively, unconditionally, unequivocally, distinctly and absolutely." Swickv. Mueller, 193 Or. 668, 676 (1951). Second, in o r d e r for the breach to " b e c o m e an effective breach, the other p a r t y m u s t accept and act o n the s a m e . " Id. at 677. In instances where the underlying policies have n o t been e x h a u s t e d , b u t t h e e x c e s s i n s u r e r h a s r e p u d i a t e d i t s d u t y " p r i o r t o t h e t i m e for p e r f o r m a n c e . . . a declaratory j u d g m e n t o n t h e c o v e r a g e o b l i g a t i o n s o f c e l i a i n d e f e n d a n t - i n s u r e r s m a y b e appropriate, [although] a b r e a c h o f contract action is premature." M m y l a n d Casualty Co. v. W.R. Grace & Co.,

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1996 U.S. Dist. LEXIS 7795, at *5 (S.D.N.Y. June 7, 2006). Thus, absent a n allegation o f a claim and repudiation, no c l a i m o f anticipatOlY breach has been pleaded. Third-party plaintiffs respond that L M I ' s d u t y to defend h a s b e e n triggered as i t h a s been s h o w n that t h i r d - p a l i y p l a i n t i f f s h a d a p r i m m y p o l i c y w i t h L M I that i n c l u d e d a d u t y to d e f e n d clause. 2 T h e r e f o r e , t h i r d - p a r t y p l a i n t i f f s c o n t e n d , L M I i s c u r r e n t l y i n b r e a c h , i t s c l a i m d o e s n o t implicate anticipatory b r e a c h and, thus, M m y l a n d Casualty does n o t apply. Again, evidence as to the nature o f the policies in question is extrinsic and w i l l n o t b e considered b y the court. Furthermore, third-party plainti ffs did not specifically plead that L M l h a d a d u t y to defend, t h a t thirdp a r t y p l a i n t i f f s g a v e L M I n o t i c e o f t h e i r claim, o r t h a t L M I u n e q u i v o c a l l y r e f u s e d t o d e f e n d t h a t claim o n b e h a l f o f t h e third-party plaintiffs. Third-pmiy plaintiffs' pleading contains o n l y the b r o a d e s t o f generalities, at b e s t advancing t h e c o n c l u s i o n t h a t t h e t h i r d - p m i y d e f e n d a n t insurers h a v e o r will b r e a c h their duties to third-party plaintiffs, who have o r w i l l incur liability arising from the underlying actions and, thus, third-party defendants are o r w i l l b e liable for b r e a c h o f contract. This, a l o n e , i s i n s u f f i c i e n t t o m e e t t h e s t a n d a r d m i i c u l a t e d i n Twombly and A s h c r o f t . Therefore, b e c a u s e third-party plaintiffs' pleading i s insufficient as a matter o f law, thirdp a r t y d e f e n d a n t s ' motion is granted. The motion is granted with leave to third-party plaintiffs to replead i n a legally sufficient mall11er. T h e claim for declaratOly j u d g m e n t is unaffected b y this ruling.

II II

2 M a r i n e Group s t a t e s i n its r e s p o n s e that, to t h e e x t e n t L M I agrees to e m b r a c e i t s contractual o b l i g a t i o n s u n d e r its i n s u r a n c e p o l i c i e s w i t h M a r i n e G r o u p , i t w i l l drop t h e t h i r d - p a r t y c l a i m s arising from b r e a c h o f contract.

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Conclusion

F o r t h e r e a s o n s a b o v e stated, L M I ' s m o t i o n is G R A N T E D w i t h o u t p r e j u d i c e a n d w i t h leave to replead. D A T E D t h i s 2 9 t h d a y o f S e p t e m b e r , 2009.

(JOHN V. A C O S T A United'States Magistrate J u d g e

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