Triyar Companies, LLC, et al. v. Lexington Insurance Company, et al.

Filing 55

MEMORANDUM AND ORDER granting in part denying in part 38 MOTION to Dismiss for Lack of Subject Matter Jurisdiction.(Signed by Judge Gregg Costa) Parties notified.(arrivera, )

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
GALVESTON DIVISION
TRIYAR COMPANIES, LLC, et al,

§
§
§
Plaintiffs,
§ CIVIL ACTION NO. 3:12-CV-294
VS.
§
LEXINGTON INSURANCE COMPANY, §
§
et al,
§
Defendants.
§

MEMORANDUM AND ORDER
This case requires the Court to determine whether a coverage dispute
between insurer and insured has ripened into an actual controversy. Plaintiffs are
Triyar Companies, Inc., a real estate development firm, and fifteen of its associated
business entities (collectively, Triyar). Triyar sues for a declaratory judgment that
one of its insurers, Defendant Lexington Insurance Company, is liable for alleged
hailstorm damage to a number of its Phoenix, Arizona area properties. Triyar also
requests a declaration that Lexington will breach the insurance policy and its duty
of good faith and fair dealing if it does not promptly pay Triyar’s claims.
Lexington has moved to dismiss on the ground that—because it is still
investigating Triyar’s claim, Triyar has not submitted a proof of loss, and
Lexington has not officially denied Triyar’s claim—there is no ripe, justiciable
controversy between the parties.

The Court has considered the briefing and

arguments of counsel, the facts of the case, and the applicable law. It now holds
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that Triyar’s request for a declaration that it is entitled to coverage under the policy
is ripe for adjudication, but that its request for a declaration that Lexington will
commit a breach of contract and a breach of its duty of good faith by not paying
Triyar’s claim is not. The Court therefore GRANTS IN PART and DENIES IN
PART Lexington’s motion to dismiss.
I.

BACKGROUND
Triyar is a real estate company that, through an array of subsidiaries, owns

hundreds of commercial properties nationwide, including 51 properties in the
Phoenix area. 1 During the time relevant to this case, Triyar insured the Arizona
properties through a structured policy for primary and excess insurance with seven
different insurance companies. Defendant Lexington was the company responsible
for providing the primary level of coverage on the policy, up to a limit of $10
million.
On October 5, 2010, a major wind and hailstorm struck the Phoenix area.
Triyar alleges that its Arizona properties suffered significant damage from the
storm. On October 1, 2012, Triyar provided notice to its insurers that several
dozen of its Arizona properties had suffered wind and hail damage.

Shortly

thereafter, on October 5, exactly two years after the storm, it filed suit in this Court

1

Following the standard for analyzing Rule 12(b)(1) motions, the Court’s analysis takes into
account the well-pleaded facts in Triyar’s complaint as well as the undisputed facts. See infra
p. 3.

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alleging its properties “sustained extensive and substantial damage, including but
not limited to the exteriors, roofs, window structures and HVAC systems,” and
requesting declaratory relief against all seven insurers. Docket Entry No. 1 at 10–
11. Triyar later reached tolling agreements with the six insurers providing excess
coverage and voluntarily dismissed its claims against them without prejudice. In
its live pleading, Triyar sues only Lexington.
II.

STANDARD OF REVIEW
“A motion to dismiss for lack of subject matter jurisdiction should be

granted only if it appears certain that the plaintiff cannot prove any set of facts in
support of his claim that would entitle plaintiff to relief.” Choice, Inc. of Tex. v.
Greenstein, 691 F.3d 710, 714 (5th Cir. 2012) (citation and internal punctuation
omitted); see Williams v. Wynne, 533 F.3d 360, 365 n.2 (5th Cir. 2008) (stating
that the standard for reviewing a motion to dismiss for lack of subject matter
jurisdiction pursuant to Rule 12(b)(1) is similar to that applicable to motions to
dismiss under Rule 12(b)(6)). In evaluating a motion to dismiss for lack of subject
matter jurisdiction, however, courts may consider “a broader range of materials.”
Wynne, 533 F.3d at 365 n.2. These materials may include “(1) the complaint
alone; (2) the complaint supplemented by undisputed facts in the record; or (3) the
complaint supplemented by undisputed facts plus the court’s resolution of disputed
facts.” Clark v. Tarrant County, 798 F.2d 736, 741 (5th Cir. 1986).
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III.

DISCUSSION
A. The Declaratory Judgment Standard

Triyar asks this Court for a declaration that Lexington is obligated to provide
coverage under the insurance policy, and for a declaration that Lexington will
breach the policy and its duty of good faith if it fails to pay. Lexington argues that
there is no actual controversy for this Court to resolve because Triyar’s suit is not
ripe. It argues that the claimed dispute is speculative and may never truly arise
because Triyar filed suit four days after notifying Lexington of its potential claim,
Triyar never submitted a sworn proof of claim and continues to calculate its
damages, and Lexington has not denied Triyar’s claim.
The Declaratory Judgment Act allows this Court, in the case of an “actual
controversy within its jurisdiction,” to “declare the rights and other legal relations
of any interested party.” 28 U.S.C. § 2201(a). The Supreme Court requires that, to
meet the background case-or-controversy requirement of Article III, a declaratory
judgment “dispute be definite and concrete, touching the legal relations of parties
having adverse legal interests; and that it be real and substantial and admit of
specific relief through a decree of a conclusive character, as distinguished from an
opinion advising what the law would be upon a hypothetical state of facts.”
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007) (citations and
internal punctuation omitted).
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As with all cases, one part of the case-or-controversy requirement is that
declaratory judgment actions be ripe for adjudication. See Shields v. Norton, 289
F.3d 832, 834–35 (5th Cir. 2002). However, as the Fifth Circuit and other courts
have noted, “applying the ripeness doctrine in the declaratory judgment context
presents a unique challenge.” Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891,
896 (5th Cir. 2000) (citing Rhode Island v. Narragansett Indian Tribe, 19 F.3d
685, 692 (1st Cir. 1994), and noting that court’s comment that “declaratory actions
contemplate an ex ante determination of rights that exists in some tension with
traditional notions of ripeness” (internal quotation marks omitted)). “A court
should dismiss a case for lack of ‘ripeness’ when the case is abstract or
hypothetical. The key considerations are ‘the fitness of the issues for judicial
decision and the hardship to the parties of withholding court consideration.’” New
Orleans Pub. Serv., Inc. v. Council of New Orleans, 833 F.2d 583, 586–87 (5th
Cir. 1987) (quoting Abbott Laboratories v. Gardner, 387 U.S. 136, 149 (1967))
(internal citations omitted). The fitness considerations ask whether the issues at
stake are purely legal or whether further factual development is necessary to
resolve the case. Nat’l Park Hospitality Ass’n v. Dep’t of Interior, 538 U.S. 803,
812 (2003). The hardship inquiry examines the difficulty the parties will face if a
judicial decision is denied. Toilet Goods Ass’n v. Gardner, 387 U.S. 158, 162
(1967).
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B. Declaration to Establish Coverage
The Court first addresses Triyar’s request for a declaration regarding
whether it is entitled to coverage for the damage to its Arizona properties under its
Lexington policy. See Docket Entry No. 52 at 10 (“Plaintiffs seek a declaration
that . . . Defendants have a duty to pay the full amount of benefits due under the
policies, in their relevant proportions.”). With respect to the fitness considerations,
it is true that the parties have not yet determined the amount of Triyar’s damages.
But Triyar does not ask the Court to enter a ruling based on some speculative
future event. The factual basis for Triyar’s claim—the October 2010 hailstorm—is
a past event that is neither abstract nor hypothetical.

Cf. St. Johns United

Methodist Church v. Delta Elec., Inc., No. 3:11-57, 2012 WL 3205045, at *2 (S.D.
Tex. Aug. 3, 2012) (denying a motion to dismiss for lack of ripeness where the
alleged conduct giving rise to the claims had already occurred).

Declaratory

judgment actions are often used to determine whether insurance coverage exists for
damage caused by a past event, even in cases in which the plaintiff’s damages have
not yet been determined. See, e.g., Duane Read, Inc. v. St. Paul Fire & Marine
Ins. Co., 411 F.3d 384, 389 (2d Cir. 2005) (holding that an insurance dispute
arising out of damage caused by the September 11 terrorist attacks was ripe and
noting that “[b]ecause the issue presented . . . concerned the scope of coverage, the
standard for ripeness . . . was plainly satisfied”); Certain Underwriters at Lloyd’s
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London v. A & D Interests, Inc., 197 F. Supp. 2d 741, 750 (S.D. Tex. 2002)
(holding, in a case where insurers sought a declaration that they were not liable to
the insured, that, “[w]hile the Court realizes that the precise amount of damages
accruing to [the insurers] is not yet determinable (since the state court lawsuit
against [the insured] is still ongoing, and [the insured’s] liability, if any, has not yet
been decided) . . . this mere fact alone does not negate the existence of an actual
and real controversy.” (citation omitted)); Accardo v. Am. First Lloyds Ins. Co.,
No. H-11-0008, 2012 WL 1576022, at *5 n.3 (S.D. Tex. May 3, 2012) (holding
ripe a declaratory judgment action to establish policy coverage for damage caused
by an uninsured motorist); see also Associated Indem. Corp. v. Fairchild Indus.,
Inc., 961 F.2d 32, 35 (2d Cir. 1992) (“Indeed, litigation over insurance coverage
has become the paradigm for asserting jurisdiction despite ‘future contingencies
that will determine whether a controversy ever actually becomes real.’” (quoting
10A CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE & PROCEDURE § 2757 (2d
ed. 1983))). The issues at stake here are fit for judicial decision.
The second ripeness consideration, the hardship of withholding decision,
also favors a finding that this dispute is ripe.

Triyar argues in passing that

dismissal for want of ripeness would “[n]o doubt” allow Lexington to raise a
limitations defense to certain claims in a future suit. Docket Entry No. 42 at 12.
Although it is not obvious to this Court that limitations would apply (Triyar’s
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policy measures the limitation period from the date that notice of loss is served
rather than from the date of loss, see Docket Entry No. 53 at 45–46), to the extent
that there is a possibility that limitations could bar Triyar’s claims in a future suit,
that possibility also favors a finding of ripeness. See Confederated Tribes & Bands
of the Yakama Nation v. United States, 89 Fed. Cl. 589, 617–18 (Fed. Cl. 2009)
(holding that the possibility that the defendant might raise a limitations defense if
the case were to be dismissed and refiled could cause hardship to plaintiff and thus
supported a finding of ripeness).
Lexington’s argument that Triyar’s action is not ripe relies heavily on a
recent decision from the Eleventh Circuit, Yacht Club on the Intracoastal Condo.
Ass’n, Inc. v. Lexington Ins. Co., No. 11-15683, 2013 WL 598389 (11th Cir. Feb.
15, 2013). In Yacht Club, the plaintiff submitted a claim for hurricane damage to
its two insurers, and subsequently filed suit against them for breach of contract. Id.
at *1. The plaintiff sent a formal proof of loss to the defendant providing the
primary coverage layer, and that defendant responded with a letter that, though not
a formal rejection, “made it clear that it would not further consider [plaintiff’s]
claim.” Id. at *4. The Yacht Club court concluded that this letter served to “den[y]
the claim at that time” and thus that the plaintiff’s contract claim against the
defendant was ripe. Id. However, the court also held that the plaintiff’s contract
claim against the other defendant, the excess coverage insurer, was not ripe
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because the plaintiff had never submitted a proof of loss to that defendant and,
accordingly, that defendant had never denied the plaintiff’s claim. Id.
Lexington argues that its position is identical to that of the excess coverage
insurer in Yacht Club because Triyar never submitted a sworn proof of loss and it
has not denied Triyar’s claim. But Yacht Club addressed the ripeness of a breach
of contract claim rather than an action for a declaration to establish coverage. See
Yacht Club, 2013 WL 598389, at *4. Triyar’s action for a declaration to establish
coverage under the policy is ripe for decision regardless whether a breach of that
policy has occurred. See Duane Read, Inc. v. St. Paul Fire & Marine Ins. Co., 261
F. Supp. 2d 293, 294–95 (S.D.N.Y. 2003) (holding that breach of contract claims
relating to an insurance policy were unripe because the plaintiff had not submitted
a proof of loss, but that the plaintiff’s actions for a declaration of coverage under
that same policy were ripe); Accardo, 2012 WL 1576022, at *3, 5 (holding a
declaratory judgment action to establish coverage under an insurance policy to be
ripe but dismissing as unripe a breach of contract claim based on that same policy);
see also Rowan Cos. v. Griffin, 876 F.2d 26, 28 (5th Cir. 1989) (“The declaratory
judgment vehicle . . . is intended to provide a means of settling an actual
controversy before it ripens into . . . a breach of a contractual duty.” (citation
omitted)). Yacht Club thus does not alter the Court’s conclusion that both ripeness
considerations support a finding that the declaratory judgment controversy is
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justiciable. The Court has subject matter jurisdiction over Triyar’s action for a
declaratory judgment that it is entitled to coverage under the Lexington policy.
C. Declaration Regarding a Future Breach
Triyar also requests a declaration that “any Defendant’s failure to pay
Plaintiffs the portion of damages for which that Defendant is responsible
constitutes breach of contract as well as breach of the duty of good faith and fair
dealing and violations of the Texas Insurance Code.” Docket Entry No. 52 at 12.
This is where Lexington’s Yacht Club argument is persuasive. Triyar’s
request for a declaration that Lexington may commit a breach in the future is based
not on the past hailstorm but on a speculative future event: that Lexington will
wrongfully deny Triyar’s claim for coverage under the policy. 2 Like in Yacht
Club, a breach of contract claim would be premature under these circumstances.
See Yacht Club, 2013 WL 598389, at *4; see also Spicewood Summit Office
Condos. Ass’n v. Am. First Lloyd’s Ins. Co., 287 S.W.3d 461, 466 (Tex. App.—
Austin 2009, no pet.) (stating that a breach of contract claim would not have
accrued until after the insured submitted its proof of loss). Similarly, an action by
2

While Triyar argues in its response to the motion to dismiss that Lexington has in fact denied
its claim, this argument appears to be based on a misinterpretation of Lexington’s December
2012 letter, in which Lexington made it clear that it was continuing to consider and adjust
Triyar’s claim. See Docket Entry No. 42-3 at 1–2. Moreover, even though Triyar filed in its
response an affidavit from its representative that claimed that Lexington denied Triyar’s claim,
see Docket Entry No. 42-5 at 3, two months later Triyar filed a second amended complaint in
which it did not allege any such denial. See Docket Entry No. 52. Because Triyar does not now
allege a denial, the Court holds it to be undisputed that Lexington has not yet denied Triyar’s
claim.

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Triyar for breach of Lexington’s duty of good faith would be premature before
Lexington denies the claim or unreasonably delays or fails to act on it. See Murray
v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828–29 (Tex. 1990) (holding that a
claim for the breach of the duty of good faith generally accrues when the insurer
denies the claim); Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 56 & n.5 (Tex.
1997) (holding that an insurer commits a breach by failing to reasonably
investigate a claim). Thus, because Triyar is asking for a declaration of liability
based on events that have not yet occurred, the issues are not fit for judicial
decision and therefore are unripe. The Court need not consider whether Triyar
would suffer hardship from a dismissal given that the parties have not briefed
whether a limitations defense might bar a future action and, moreover, because
courts in insurance cases often find claims to be unripe when they are not fit for
decision.

See, e.g., Yacht Club, 2013 WL 598389, at *4 (holding, without

considering hardship, that a breach of contract claim was premature and therefore
unripe); Duane Read, 261 F. Supp. 2d at 294–95 (same); Accardo, 2012 WL
1576022 at *3 (same).

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IV.

CONCLUSION

For the reasons discussed above, Lexington’s motion to dismiss (Docket
Entry No. 38) is DENIED IN PART with respect to Triyar’s action for a
declaration to establish Lexington’s obligation to provide coverage under the
policy. However, it is GRANTED IN PART with respect to Triyar’s action for a
declaration that Lexington will commit breach of contract, breach of its duty of
good faith and fair dealing, and violations of the Texas Insurance Code if it fails to
pay what is owed under the policy.

That latter action is not ripe and is

DISMISSED WITHOUT PREJUDICE for lack of subject matter jurisdiction.
IT IS SO ORDERED.
SIGNED this 27th day of June, 2013.
___________________________________
Gregg Costa
United States District Judge

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