FCCI Insurance Company v. Island Pointe LLC et al
Filing
130
ORDER AND OPINION GRANTING the six Motions to Dismiss (Dkt. Nos. 14 , 38 , 43 , 48 , 92 , 95 ) and DENYING WITHOUT PREJUDICE 126 FCCI's Motion for Leave to File a Second Amended Complaint Signed by Honorable Richard M Gergel on 2/22/2018.(sshe, )
IN THE UNITED ST ATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
FCCI Insurance Company,
Plaintiff,
v.
Island Pointe, LLC, et. al.,
Defendants.
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Case No 2:17-cv-1976-RMG
ORDER AND OPINION
This matter is before the Court on six Motions to Dismiss filed by Tallent and Sons, Inc.
("Tallent") (Dkt. No. 14); Liberty Mutual Fire Insurance Company ("Liberty") (Dkt. No. 38);
Pennsylvania Lumberman' s Mutual Insurance Company ("PLM") (Dkt. No. 43); Scottsdale
Insurance Company ("Scottsdale") (Dkt. No . 48); American Residential Services, LLC ("ARS")
(Dkt. No. 92); and Creekside of Charleston, Inc. ("Creekside") (Dkt. No. 95). 1 Plaintiff FCCI
Insurance Company ("FCCI") has filed a single response to the Motions to Dismiss (Dkt. No .
101), Scottsdale has filed a Reply (Dkt. No . 106), and PLM has joined Scottsdale' s arguments in
reply (Dkt. No. 107). For the reasons set forth below, the six Motions to Dismiss are granted.
I.
Background and Relevant Facts
This is a declaratory judgment action arising out of the construction of Palmetto Pointe at
Peas Island, a condominium complex in Charleston, South Carolina (the "Peas Island Project").
Complete Building Corporation ("Complete") was the general contractor for the Peas Island
Project. Plaintiff FCCI issued commercial general liability policies and umbrella policies to
Complete. The Palmetto Pointe at Peas Island Condominium Property Owners Association, Inc.
1
The Court will issue a separate Order on United Specialty Insurance Company' s Motion to Dismiss.
(Dkt. No. 84.)
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(the "Peas Island POA'') filed the underlying complaint against Complete and a number of
subcontractors alleging latent construction defects that caused water intrusion and other
damages.
FCCI is defending Complete in the underlying action. FCCI filed this action seeking a
declaratory judgment that Complete qualifies as an additional insured under the policies
Defendants issued to Complete's subcontractors and that FCCI is therefore absolved of its duty
to defend Complete under the "Other Insurance" provision in the policies FCCI issued to
2
Complete. The "Other Insurance" provision in the general liability policies FCCI issued to
Complete provides the following:
4.0therlnsurance
If other valid and collectible insurance is available to the insured for a loss we
cover under Coverages A or B of this Coverage Part, our obligations are limited
as follows :
a. Primary Insurance
This insurance is primary except when Paragraph b. below applies. If this
insurance is primary, our obligations are not affected unless any of the
other insurance is also primary. Then, we will share with all that other
insurance by the method described in Paragraph c. below.
b. Excess Insurance
(1) This insurance is excess over
(a) Any of the other insurance, whether primary, excess,
contingent or on any other bases:
2
FCCI also requested declarations regarding whether FCCI owes Complete coverage under FCCI's
policies, and if FCCI is found to owe Complete a duty to defend or indemnify, an apportionment of the
time on the risk between FCCI and other insurers which issued policies to Complete. (Dkt. No. 101 at 2.)
These claims do not apply to the Defendants whose Motions to Dismiss are at issue here because they
were not parties to FCCI's contracts with Complete and did not issue policies to Complete.
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(b) Any other primary insurance available to you covering
liability for damages arising out of the premises or
operations, or the products and completed operations, for
which you have been added as an additional insured by
attachment of an endorsement.
(2) When this insurance is excess, we will have no duty under
Coverages A or B to defend the insured against any "suit" if
any other insurer has a duty to defend the insured against that
"suit". If no other insurer defends, we will undertake to do so,
but we will be entitled to the insured's rights against all those
insurers.
(3) When this insurance is excess over other insurance, we will pay
only our share of the amount of the loss, if any, that exceeds the
sum of:
(a) The total amount that all such other insurance would
pay for the loss in the absence of this insurance; and
(b) The total of all deductible and self-insured amounts
under all other insurance.
(4) We will share the remaining loss, if any, with any other
insurance that is not described in this Excess Insurance Provision
and was not brought specifically to apply in excess of the Limits of
Insurance showing in the Declarations of this Coverage Part.
(Dkt. No. 1-1 at 25- 26) (emphasis added).
II.
LegalStandards
A.
Rules 12(b)(l) and 12(b)(6)
A motion to dismiss for lack of subject matter jurisdiction filed pursuant to Rule 12(b)(1 )
of the Federal Rules of Civil Procedure raises the fundamental question of whether a court has
jurisdiction to adjudicate the matter before it. Arbaugh v. Y & H Corp., 546 U. S. 500, 514
(2006). It is the plaintiffs burden to prove jurisdiction, and the court is to "regard the pleadings'
allegations as mere evidence on the issue, and may consider evidence outside the pleadings
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without converting the proceeding to one for summary judgment." Richmond, Fredericksburg &
Potomac R. Co. v. United States, 945 F.2d 765, 768 (4th Cir.1991).
A motion to dismiss for lack of subject matter jurisdiction can arise in two contexts: (1)
when the moving party maintains that the complaint "fails to allege facts upon which subject
matter jurisdiction can be based" or (2) when the moving party asserts that the "jurisdictional
allegations of the complaint [are] not true." Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir.1982).
In the first situation, where the moving party asserts that the non-moving party has failed to
allege facts establishing subject matter jurisdiction, the court must assume all the facts alleged in
the complaint to be true. Id. In the second situation, where the moving party disputes the validity
of the jurisdictional allegations in the complaint, the court may look beyond the complaint and
consider other evidence, such as affidavits, depositions, and live testimony. Id. The burden of
proof in that situation falls on the plaintiff to demonstrate subject matter jurisdiction. Id.
Rule 12(b)(6) of the Federal Rules of Civil Procedure permits the dismissal of an action if
the complaint fails "to state a claim upon which relief can be granted." Such a motion tests the
legal sufficiency of the complaint and "does not resolve contests surrounding the facts, the merits
of the claim, or the applicability of defenses. . . . Our inquiry then is limited to whether the
allegations constitute 'a short and plain statement of the claim showing that the pleader is
entitled to relief."' Republican Party of N. C. v. Martin, 980 F.2d 943 , 952 (4th Cir. 1992)
(quotation marks and citation omitted).
When considering a motion to dismiss under Rule
12(b)(6), the Court is obligated to "assume the truth of all facts alleged in the complaint and the
existence of any fact that can be proved, consistent with the complaint's allegations." E. Shore
Mkts., Inc. v. JD. Assocs. Ltd. P 'ship, 213 F.3d 175, 180 (4th Cir. 2000). While the Court must
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accept the facts in a light most favorable to the non-moving party, it "need not accept as true
unwarranted inferences, unreasonable conclusions, or arguments." Id.
To survive a motion to dismiss, the complaint must state "enough facts to state a claim to
relief that is plausible on its face."
Bell At!. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
Although the requirement of plausibility does not impose a probability requirement at this stage,
the complaint must show more than a "sheer possibility that a defendant has acted unlawfully. "
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint has "facial plausibility" where the
pleading "allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged. " Id.
B.
Declaratory Judgment
Under Article III of the United States Constitution, federal courts may not grant
declaratory relief unless an "actual controversy" exists. Mary land Casualty Co. v. Pacific Coal &
Oil Co., 312 U.S. 270, 272 (1941). In an action for a declaratory judgment, the facts alleged must
present "a substantial controversy, between parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory judgment. " Id. at 273. This
limitation is implemented, in part, by the judicially created standing-to-sue doctrine. The
standing-to-sue doctrine focuses on " [w]hether a party has sufficient stake in an otherwise
justiciable controversy to obtain judicial resolution of that controversy." Sierra Club. v. Morton ,
405 U.S. 727, 731 (1972). The well-settled rule for standing requires that a litigant must
demonstrate an "(1) injury in fact (2) that is fairly traceable to the defendant's conduct and (3)
that is likely to be redressed by a favorable decision." Retail Indus. Leaders Assoc. v. Fielder,
475 F.3d 180, 186 n. 1 (4th Cir. 2007) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 56061 (1992)). To satisfy the injury-in-fact element of this test, a plaintiff must have "suffered ...
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an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual
or imminent, not conjectural or hypothetical." White Tail Park v. Straube, 413 F.3d 451 , 458 (4th
Cir. 2005) (quoting Lujan, 504 U.S. at 560- 61).
III.
Discussion
A.
Complete's Status as an Additional Insured and FCCl's Duty to Defend
FCCI seeks this Court' s declaratory judgment that Complete qualifies as an additional
insured under the policies Defendants issued to Complete's subcontractors and that FCCI is
therefore absolved of its duty to defend Complete under the "Other Insurance" provision in the
policies FCCI issued to Complete. The moving Defendants argue that FCCI's claims against
them must be dismissed because FCCI cannot obtain a judicial declaration regarding a
Defendant' s duty to defend Complete under any insurance contract to which it is not a party. In
support of their Motions to Dismiss, Defendants rely primarily on Sloan Constr. Co. v. Cent.
Nat 'l Life Ins. Co. of Omaha, 236 S.E.2d 818 (S.C. 1977) and Auto-Owners Ins. Co. v. Travelers
Cas. and Sur. Co. of Am., No. 4:12-cv-3423 , 2014 WL 3687338 (D.S .C. July 22, 2014),
aff'd, 597 F. App'x 197 (4th Cir. 2015).
In Sloan, the Supreme Court of South Carolina considered a dispute between two insurers
about their obligations to defend Sloan in a lawsuit arising out of an auto accident. One insurer
undertook Sloan's defense while the other refused to defend. The Court observed that " [t]he duty
to defend is personal to each insurer" and " [t]he obligation is several and the insurer is not
entitled to divide the duty nor require contribution from another absent a specific contractual
right. " Sloan , 236 S.E.2d at 820. The Court held that "where two [insurance] companies insure
the identical risk and both policies provide for furnishing the insured with a defense, neither
company, absent a contractual relationship, can require contribution from the other for expenses
of the defense where one denies liability and refuses to defend." Id. Under Sloan, FCCI cannot
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seek this Court's enforcement of any Defendant's duty to defend Complete when that duty
allegedly arises under an insurance contract between a Defendant and one of Complete's
subcontractors to which FCCI is not a party.
In Auto-Owners, United States District Judge R. Bryan Harwell applied Sloan when
considering a declaratory judgment action brought by an insurance company in similar
circumstances. Auto-Owners issued a commercial general liability policy to the insured and
provided a defense to the insured in the underlying lawsuit. Travelers, which had issued a nonprofit management and organization liability policy to the insured, refused to provide a defense.
Auto-Owners filed suit seeking a judicial declaration that Travelers had a duty to defend their
mutual insured in the underlying lawsuit. Judge Harwell determined that although Auto-Owners
had standing to bring a declaratory judgment action 3 , it had failed to state a claim against
Travelers upon which relief could be granted. Auto-Owners, 2014 WL 3687338, at *4. Judge
Harwell determined that the Supreme Court of South Carolina would likely find 4 that, under
Sloan, Auto-Owners had failed to state a claim against Travelers, especially in light of the
Supreme Court' s observation in Sloan "that the insurer seeking to compel the other insurer to
defend was not damaged: 'since it was a stranger to the contract' between the other company and
3
Standing requires "a substantial controversy, between parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory judgment." Md. Cas. Co. v. Pac. Coal &
Oil Co. , 312 U.S. 270, 273 (1941 ). FCCI has standing here for the same reasons Auto-Owners had
standing: FCCJ has alleged that it continues to spend significant funds defending the underlying lawsuit,
the parties disagree about whether Defendants have a duty to defend Complete, and the underlying
lawsuit is ongoing such that there is "sufficient immediacy to warrant issuance of a declaratory
judgment." Auto-Owners, 2014 WL 3687338, at *3.
4
Judge Harwell observed that "[t]he Supreme Court of South Carolina has not addressed whether an
insurance company may seek to require another insurer to defend its insured up front via a declaratory
judgment," but the parties did not ask Judge Harwell to certify the question. Auto-Owners, 2014 WL
3687338, at *5.
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its insured." Id. at *6. Judge Harwell said this analysis was "equally applicable to a situation
where the insurers insure different risks, and where a declaratory judgment is sought rather than
contribution." Id. He ultimately determined that Auto-Owners ' declaratory judgment claim
against Travelers failed as a matter of law because Auto-Owners was not a party to the insurance
contract with Travelers.5 Judge Harwell noted that the opinion of the Court of Appeals of South
Carolina in Askins supports this conclusion. Id. at *4; Shelby Mut. Ins. Co. v. Askins, 413 S.E.2d
855 , 859 (S .C. Ct. App. 1992) ("Fundamental to the concept of duty to defend is the requirement
that the party seeking the defense must be an insured under a contract of insurance. ").
Applying Sloan and Auto-Owners, this Court finds that FCCI has failed to state a
declaratory judgment claim against any of the six moving Defendants. As was the case in Auto-
Owners, FCCI is not a party to any contract between a moving Defendant and one of Complete' s
subcontractors under which it alleges that Complete qualifies as an additional insured. For this
reason, FCCI cannot compel any moving Defendant to fulfill an alleged duty to defend Complete
under those contracts.
FCCI repeatedly insists that "is not seeking a declaration requiring another carrier to
defend Complete," but rather seeks this Court's declaratory judgment to interpret the "other
insurance" clause in its own policy. (Dkt. No. 101 at 6.) FCCI admits, however that it seeks to
determine "whether Complete qualifies as an additional insured under one or more of its
subcontractors ' policies, whether such policies include a duty to defend, and whether any
coverage is primary." (Id. at 5.) FCCI claims that if its "policies are excess, then FCCI has the
right to elect not to continue to defend Complete." (Dkt. No. 101 at 5.) The plain language of the
5
The Fourth Circuit affirmed Judge Harwell's decision, concluding that, under Sloan, "Auto-Owners is
not entitled to declaratory or monetary relief under South Carolina law." 597 F. App ' x 197, 198 (4th Cir.
2015).
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contract does not confer that right upon FCCI. The contract provides that, "If no other insurer
defends, we will undertake to do so, but we will be entitled to the insured's rights against all
those insurers." (Dkt. No. 1-1at25-26.) For this reason, even if this Court issued the requested
declaration - that Complete qualifies as an additional insured under one of the subcontractor's
policies - that declaration would not be sufficient for FCCI to obtain the relief it seeks because it
has contracted to defend Complete if "no other insurer defends," and, under Auto-Owners,
cannot compel the moving Defendants to defend Complete in the underlying suit.
A court should only grant a declaratory judgment "when the judgment will serve a useful
purpose in clarifying and settling legal relations in issue, and when it will terminate and afford
relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Centennial
Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir. 1996) (quoting Aetna Cas. & Sur. Co. v.
Quarles, 92 F.2d 321, 324 (4th Cir. 1937)). A court should not grant a declaratory judgment
when doing so would "try a controversy by piecemeal[] or [would] try particular issues without
settling the entire controversy." Id. at 257 (quoting Quarles, 92 F.2d at 325). For the reasons
discussed above, FCCl ' s declaratory judgment claim against the moving Defendants is subject to
dismissal because it cannot afford FCCI the relief it seeks - release from its duty to defend
Complete. In the alternative, to the extent FCCI argues in earnest that it does not seek to compel
the moving Defendants to defend Complete but seeks only this Court' s interpretation of its
obligations to Complete, then the declaratory judgment claim against the moving Defendants is
subject to dismissal because there is no "actual controversy" between FCCI and these
Defendants.
B.
Indemnification
No factual findings have been made in the underlying lawsuit, so a determination of
whether any party has a duty to indemnify is not ripe for this Court's consideration. See Certain
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Underwriters at Lloyd 's London v. Butler, No. 1:16-CV-00975-JMC, 2017 WL 570024, at *4
(D.S.C. Feb. 13, 2017) (Observing that, generally, a determination of whether an insurer has an
affirmative duty to indemnify is not ripe for adjudication until factual findings are made in the
underlying lawsuit.) FCCI's declaratory judgment claims against the six moving Defendants with
respect to indemnification are therefore dismissed without prejudice.
IV.
Motion to Amend
Plaintiff FCCI has filed a Motion for Leave to File a Second Amended Complaint. (Dkt.
No. 126.) FCCI seeks to dismiss certain parties from the lawsuit, replace improperly identified
parties, and add additional information, but says it does not seek to advance any new legal
theories. Because FCCI's claims against the six moving Defendants are subject to dismissal
under South Carolina law and Fourth Circuit precedent, FCCI's pending Motion for Leave to
File a Second Amended Complaint is denied without prejudice. FCCI may file a new motion for
leave to amend after considering this Order and conferring with opposing counsel.
V.
Conclusion
For the reasons set forth below, the six Motions to Dismiss (Dkt. Nos. 14, 38, 43, 48, 92,
95) are GRANTED. FCCI's Motion for Leave to File a Second Amended Complaint (Dkt. No.
128) is DENIED WITHOUT PREJUDICE.
AND IT IS SO ORDERED.
Richard Mark Gerge
United States District
February ),~ , 2018
Charleston, South Carolina
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