Austin James Associates, Inc. v. American International Specialty Lines Insurance Co.
Filing
19
MEMORANDUM and ORDER denying 8 Motion to Dismiss for Failure to State a Claim Signed by Honorable James M. Munley on 10/5/12 (sm, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
AUSTIN JAMES ASSOCIATES,
INC.,
Plaintiff
:
No. 3:12cv1125
:
:
(Judge Munley)
:
v.
:
:
AMERICAN INTERNATIONAL
:
SPECIALTY LINES INSURANCE
:
CO.,
:
Defendant
:
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
MEMORANDUM
Before the court for disposition is the motion to dismiss pursuant to
Rule 12(b)(6) of the Federal Rules of Civil Procedure filed by Defendant
American International Speciality Lines Insurance Co. (hereinafter
“AISLIC”) in this breach of insurance contract case. The parties have
briefed their respective positions, and the matter is ripe for disposition.
Background 1
Defendant AISLIC sold Plaintiff, Austin James Associates a five-year
environmental cost-cap insurance policy covering the term March 1, 2004
These are the facts as alleged in plaintiff’s complaint. We must
accept them as true for purposes of the instant motion. We make no
determination at this point as to whether the fact finder will ultimately
accept these facts as true.
1
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through March 1, 2009. (hereinafter “the policy”). (Doc. 1, Compl. ¶ 7).
Defendant’s broker, the Seltzer Company, negotiated the policy. (Id. ¶¶ 4,
7). Plaintiff paid the premium of $85,338.00 to Seltzer on February 12,
2004. (Id. ¶¶ 8, 10). When it paid the premium, plaintiff requested that
effective date of the insurance be March 1, 2004. (Id. ¶ 9).
Years later, plaintiff submitted a $295,613.00 claim under the policy.
(Id. ¶ 13). Defendant denied plaintiff’s claim based upon the policy’s
coverage period. (Id. ¶ 14). At the time it submitted the claim, plaintiff
noticed that the commencement date on the policy was not March 1, 2004,
as requested, but May 20, 2004, and the length of the policy had been
changed from five (5) years to four (4) years and four (4) months. (Id. ¶¶
12-13).
Based upon the denial of the claim, plaintiff instituted the instant
action. Plaintiff’s one-count complaint alleges breach of contract. Plaintiff
asserts that the insurance claim it brought is covered under the policy and
no exclusions apply to deny coverage. (Id. ¶ 18). Thus, defendant
breached its obligations under the policy according to the plaintiff. (Id. ¶
19). Plaintiff asserts that AISLIC has the obligation to honor the policy as
having begun on March 1, 2004 for a five (5) year term. (Id. ¶ 21). Plaintiff
seeks the amount of the covered loss, consequential damages, incidental
damages, interest and costs.
Defendant filed a motion to dismiss plaintiff’s complaint pursuant to
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Rule 12(b)(6) of the Federal Rules of Civil Procedure, bringing the case to
its present posture.
Jurisdiction
This Court has jurisdiction pursuant to the diversity jurisdiction
statute, 28 U.S.C. § 1332. (Id. ¶¶ 1-5). The plaintiff is a Pennsylvania
corporation with a principal place of business in Pocono Pines,
Pennsylvania, and the defendant is a citizen of New York. (Id. ¶¶ 1, 3).
Because we are sitting in diversity, the substantive law of Pennsylvania
shall apply to the instant case. Chamberlain v. Giampapa, 210 F.3d 154,
158 (3d Cir. 2000) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938)).
Standard of review
This case is before the court pursuant to defendant’s motion to
dismiss for failure to state a claim upon which relief can be granted filed
pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. When a
12(b)(6) motion is filed, the sufficiency of the allegations in the complaint is
tested. Granting the motion is appropriate if, accepting as true all the facts
alleged in the complaint, the plaintiff has not pled “enough facts to state a
claim to relief that is plausible on its face,” or put another way, “nudged [his
or her] claims across the line from conceivable to plausible.” Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 570 (2007). The Third Circuit interprets
Twombly to require the plaintiff to describe “enough facts to raise a
reasonable expectation that discovery will reveal evidence of” each
3
necessary element of the claims alleged in the complaint. Phillips v. Cnty.
of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S.
at 556)). Moreover, the plaintiff must allege facts that “justify moving the
case beyond the pleadings to the next stage of litigation.” Id. at 234-35.
In relation to Federal Rule of Civil Procedure 8(a)(2), the complaint
need only provide “‘a short and plain statement of the claim showing that
the pleader is entitled to relief,’ in order to ‘give the defendant fair notice of
what the . . . claim is and the grounds upon which it rests[.]’” Twombly,
550 U.S. at 555 (citation omitted). “[T]he factual detail in a complaint
[cannot be] so undeveloped that it does not provide a defendant the type of
notice of claim which is contemplated by Rule 8.” Phillips, 515 F.3d at 232
(citation omitted). “Rule 8(a)(2) requires a ‘showing’ rather than a blanket
assertion of an entitlement to relief.” Id.
The issue is whether the facts alleged in the complaint, if true,
support a claim upon which relief can be granted. In deciding a 12(b)(6)
motion, the court must accept as true all factual allegations in the
complaint and give the pleader the benefit of all reasonable inferences that
can fairly be drawn therefrom, and view them in the light most favorable to
the plaintiff. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.
1997). To decide a motion to dismiss, a court generally should consider
only the allegations in the complaint, exhibits attached to the complaint,
matters of public record and documents that form the basis of a claim.
4
See In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir.
1997); Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d
1192, 1196 (3d Cir. 1993).
Discussion
Defendant’s motion raises two issues: 1) whether the complaint
should be dismissed because plaintiff’s claims are barred due to plaintiff’s
failure to read the terms of the contract in a timely manner; and 2) whether
plaintiff’s claims are barred by the statute of limitations. We will address
each issue separately.
I. Failure to read the contract
Defendant first argues that we should dismiss the complaint because
plaintiff’s breach of contract claim is founded on its own failure to read the
policy at issue. According to defendant, plaintiff bases its claim on its
assertion that it “thought” that the period of coverage for the insurance
policy was different from what the policy provided. Defendant’s position is
if plaintiff had read the contract it would have known policy’s coverage
period. Defendant argues that under Pennsylvania law, a breach of
contract claim cannot be sustained on a contention that a party to the
contract either did not read or understand the document.
Plaintiff’s position is that under the “reasonable expectations”
doctrine it had no duty to read the policy. Under this doctrine, an
insurance policy exclusion will not apply where the insurer or agent has
5
created in the insured a reasonable expectation of coverage. Here,
plaintiff prepaid for insurance for a particular policy period. The defendant
changed that period unilaterally. Defendant provided a copy of the policy
to plaintiff but did not provide separate notice of this change. Therefore,
plaintiff reasonably expected the policy to accurately reflect the agreedupon starting date and term length.
Defendant replies to plaintiff’s “reasonable expectations” argument
by asserting that this doctrine applies solely to individual policy holders, not
commercial policy holders, such as the plaintiff. Plaintiff filed a sur-reply
brief arguing that the reasonable expectations doctrine does indeed apply
to commercial entities.
The issue therefore, comes down to whether or not the “reasonable
expectations” doctrine can be used by commercial entities or if it applies
only individuals. After a careful review, we agree with the plaintiff’s position
that it may be able to use the reasonable expectations doctrine.
Pennsylvania law “dictates that the proper focus for determining
issues of insurance coverage is the reasonable expectations of the
insured.” Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330, 344 (3d.
Cir. 2005) (quoting Reliance Ins. Co. v. Moessner, 121 F.3d 895, 903 (3d
Cir. 1997)). Thus, where an “individual applies and prepays for specific
insurance coverage, the insurer may not unilaterally change the coverage
provided without an affirmative showing that the insured was notified of,
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and understood, the change.” Tonkovic v. State Farm Mut. Auto. Ins. Co.,
521 A.2d 920, 925 (1987)(emphasis added). “The burden is not on the
insured to read the policy to discover such changes, or not read it at his
peril.” Id.
Here, however, the plaintiff is not an “individual” but is a business
entity, and the issue is whether the reasonable expectations doctrine
applies to businesses in the same way that it applies to individuals.
Plaintiff argues that the reasonable expectations doctrine applies even if
the insured is a business. In support of its position, plaintiff cites Reliance
Ins. Co. v. Moessner, 121 F.3d 895 (3d Cir. 1997). In Moessner, the Third
Circuit Court of Appeals predicted that Pennsylvania courts would apply
the reasonable expectations doctrine even where the insured is a
“sophisticated purchaser” of insurance, that is a large commercial
enterprise. Id. at 904-05.
Defendant argues that after the Third Circuit decided Moessner, the
Pennsylvania Supreme Court did address the issue of whether the
reasonable expectations doctrine applies to commercial enterprises.
Defendant asserts that in Madison Construction Company v. Harleysville
Mutual Insurance, 735 A.2d 100 (Pa. 1999) the Pennsylvania Supreme
Court was invited to apply the reasonable expectations doctrine to a
commercial insured, but it declined. Thus, defendant concludes that the
reasonable expectations doctrine does not apply to commercial insureds.
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We are not convinced that the Madison case should be read so
broadly. The court addressed the reasonable expectations argument in a
footnote. Id. at 109 n.8. It stated that the plaintiff, a commercial insured,
had argued that its reasonable expectations should be examined in
determining the coverage issue in that case. Id. The court indicated that
accepting the plaintiff’s argument would entail a substantial expansion of
the reasonable expectations doctrine. Id. The court did not explain what it
meant by “substantial expansion,” however, the defendant here argues that
the “substantial expansion” addressed by Madison would be the application
of the reasonable expectations doctrine to a commercial entity as opposed
to an individual. Regardless, the court decided not to address the issue
because it was insufficiently developed in the briefs. Id. This footnote,
which merely explains that the court declined to address an argument, is
not the equivalent of the court holding that commercial entities are not
protected by the reasonable expectations doctrine.
In further support of its position, the defendant cites to two
unpublished opinions of the Third Circuit and two precedential opinions.
For our purposes, the unpublished opinions have no precedential weight.2
The published opinions do not squarely support defendant’s position. For
example defendant cites Liberty Mutual Insurance Company v. Treesdale,
We need not discuss these unpublished opinions further as we have
found a published opinion directly on point.
2
8
418 F.3d 330, 344-45 n.18 (3d Cir. 2005). In relevant part Treesdale,
however, does not hold or reason that the reasonable expectations
doctrine is inapplicable to commercial entities. It merely notes in a
footnote: “For purposes of our discussion, we ignore the fact that
Treesdale is hardly a ‘non-commercial’ insured and that the doctrine of
reasonable expectations has extremely limited relevance to our discussion
if it applies at all.” Id. Ignoring the fact that the insured was “hardly noncommercial” would not have been necessary if they simply held that
commercial entities cannot utilize the reasonable expectations doctrine.
The second Third Circuit published opinion that the defendant
addresses is Canal Insurance Company v. Underwriters at Lloyd’s London,
435 F.3d 431 (3d Cir. 2006). Once again, at best, Canal provides only
limited support for defendant’s position. In this case, the court did not rely
on the premise that only non-commercial entities are entitled to use the
reasonable expectations doctrine. Rather, its conclusion is based on the
finding that reasonable expectations doctrine does not apply to policy
limitations that are clear and unambiguous. Id. at 440. Therefore, it is
inappropriate to look beyond the plain meaning of the language and
determine the expectations of the parties. Id.
On the other hand, the Third Circuit has indeed allowed a
commercial entity to use the reasonable expectations doctrine since the
Madison decision. See UPMC Health System v. Metropolitan Life Ins.
9
Co., 391 F.3d 497 (3d Cir. 2004). In UPMC, the district court had found
the reasonable expectations doctrine inapplicable because the insured was
a “sophisticated party” and the policy was freely negotiated and entered
into by parties of equal status. Id. at 503. With regard to this ruling by the
district court, the very same decision the defendant seeks in the instant
case, the Third Circuit Court of Appeals stated: “The District Court was
wrong.” Id. at 504. The court explained as follows: “Neither any lack of
ambiguity in the policy language nor UPMC’s status as a sophisticated
purchaser of insurance prevented application of the doctrine of reasonable
expectations[.]” Id. Accordingly, other district courts within the Third
Circuit, have also concluded that status as a sophisticated commercial
insured does not automatically render the reasonable expectations
doctrine inapplicable. See Whole Enchilada, Inc. v. Travelers Prop. Cas.
Co. of America, 581 F. Supp. 2d 677, 690 (W.D. Pa. 2008); Prusky ex rel
Windsor Retirement Trust v. Phoenix Life Ins. Co., No. Civ.A. 02-6010,
2005 WL 1754948, at *14 n.11(W.D. Pa. July 26, 2005); Century Sur. Co.
v. QSC Painting, Inc., No. 2:08cv860, 2010 WL 891245, at *8 n.6 (W.D.
Pa. March 8, 2010).
Accordingly, we find that defendant’s first argument lacks merit and
that the reasonable expectations doctrine may apply to the plaintiff even
though plaintiff is a commercial entity and not an individual.
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II. Statute of limitations
Defendant’s second argument is that plaintiff’s breach of contract
claim is barred by the statute of limitations. Defendant argues that plaintiff
should have known that the policy was not what it sought when the policy
was delivered “sometime” in the first six months of 2004. Pennsylvania
has a four year statute of limitations on breach of contract claims;3
therefore, the statute of limitations expired during the first half of 2008.
The instant case was filed on June 13, 2012, and is thus barred by the
statute of limitations according to the defendant. We disagree.
The law provides that district courts may dismiss claims as time
barred at the motion to dismiss stage if the plaintiff's failure to comply with
the limitations period is apparent from the face of the complaint, the
exhibits attached to the complaint and matters of public record. See Datto
v. Harrison, 664 F. Supp. 2d 472, 482 (E.D.Pa. 2009) (citing Oshiver v.
Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n.1, n .2 (3d Cir.
1994)). With respect to applying statutes of limitations, Pennsylvania courts
generally find that the statute of limitations begins to run when the plaintiff's
cause of action accrues. See Oshiver, 38 F.3d at 1385.
In the instant case, the face of the complaint alleges a breach of
contract by the defendant, that is, a failure to pay a claim. Attachment “C”
to the complaint is the denial of claim letter issued by the defendant. (Doc.
3
See 42 PENN. CONS. STAT. ANN. § 5525(a)(1).
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1-3). The date of the denial letter is April 3, 2009. (Id.). Thus, the breach
of contract cause of action based upon the denial of the claim accrued in
April 2009. Plaintiff filed the complaint on June 13, 2012, within the fouryear statute of limitations. Moreover, plaintiff asserts that defendant
provided it with an insurance policy different from the one that it had
requested and then passively misled plaintiff into believing the policy was
consistent with the terms plaintiff requested. Plaintiff did not discover the
“change” in the policy until years later. It would be inequitable to allow
defendant to benefit from the subterfuge that plaintiff alleges and which we
must accept as true at this stage of the litigation.4 Accordingly, we find no
merit to the defendant’s statute of limitations argument.
In support of its position, defendant cites to a non-precedential
opinion from the Third Circuit Court of Appeals that it claims is directly on
point, Cooper v. Sirota, 37 Fed. Appx. 46 (3d Cir. 2002). In Cooper, the
plaintiff purchased disability insurance with the assistance of a broker. Id.
at 47. Six years later, plaintiff sued the broker, for inter alia, breach of
contract asserting that the broker had misrepresented to her the amount of
Defendant asserts that the alleged breach of contract would have
occurred when it delivered the policy to the plaintiff. The complaint,
however, does not solely focus on the delivery of the policy. Indeed, it
asserts a breach at the time that the claim was denied in 2009. (Compl. ¶
¶ 19, 21). The breach included the denial of coverage and the refusal to
honor the five-year term of the policy. (Id.) These actions occurred during
the statute of limitations.
4
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her personal disability coverage. Id. Plaintiff sued the insurance broker for
breach of contract. Id.
The Third Circuit examined whether the statute of limitations had
expired and when it had commenced running. Id. 48-49. The court held
that the statute of limitations had started to run on the date that plaintiff had
received the policies at issue because at that time she could have read
them and realized that the polices did not provide the coverage that she
desired. Id. at 48. Defendant presently asserts that Cooper is analogous
to the case before the court and therefore the statute of limitations began
to run when plaintiff received the policy at issue. We disagree.
The instant case is distinguishable from Cooper. The Cooper case
did not deal with the reasonable expectations doctrine and assertions that
the insurance company and the insured had come to an agreement on the
policy period and then the insurance company provided a policy with a
different term. Moreover, in the instant case, the plaintiff sues the
insurance company and not the broker. Accordingly, even if Cooper were
a precedential opinion, we would not find it controlling in the instant case.
Conclusion
After a careful review, we find no merit to the defendant’s motion to
dismiss plaintiff’s complaint. The motion will thus be denied. An
appropriate order follows.
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IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
AUSTIN JAMES ASSOCIATES,
INC.,
Plaintiff
:
No. 3:12cv1125
:
:
(Judge Munley)
:
v.
:
:
AMERICAN INTERNATIONAL
:
SPECIALTY LINES INSURANCE
:
CO.,
:
Defendant
:
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
ORDER
AND NOW, to wit, this 5th day of October 2012, the defendant’s
motion to dismiss for failure to state a claim (Doc. 8) is hereby DENIED.
BY THE COURT:
s/ James M. Munley
JUDGE JAMES M. MUNLEY
United States District Court
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