Penn et al v. 1st Southern Insurance Services, Inc. et al
Filing
26
MEMORANDUM OPINION. Signed by District Judge Robert E. Payne on 7/18/2018. (jsmi, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division
DENISE A. PENN, et al..
Plaintiffs,
Civil Action No. 3:17-cv-758
V.
1ST SOUTHERN INSURANCE
SERVICES, INC., et al..
Defendants.
MEMORANDUM OPINION
This matter is before the Court on DEFENDANTS' RULE 12(b)(6)
MOTION TO DISMISS (EOF No. 7). For the following reasons, the motion
will be granted.
BACKGROUND
Plaintiffs Denise Penn and Houstonia Clymer filed this action
against Defendants, 1st Southern Insurance Services, Inc., George
Roberts,
and
Fran
Pless,
for
their failure
to
procure
proper
insurance coverage for Jimmy Barker and Barker & Son Forestry
Services, Inc. Defendants have moved for dismissal of the Complaint
(ECF No. 1) pursuant to Fed. R. Civ. P. 12(b)(6).
I.
Factual Context (As Set Forth in the Complaint)
The following factual overview is based on the allegations in
the Complaint.
This case arises out of an insurance policy selected and placed
by Defendants on behalf of Jimmy Barker and Barker & Son Forestry
Services, Inc. (collectively '^Barker"). Compl. *1-3.
Defendants contracted with Barker to advise as to the kinds and
amount of insurance that Barker had to purchase under applicable law
(i.e., for a trucking business operating in at least four states)
and to select and place that insurance. Compl. *6-8. Barker had no
special experience
in
insurance
matters
and therefore
relied
entirely on Defendants and their promised expertise for the selection
and placement of insurance. Compl. *4. Barker's reliance arose, at
least in part, from Defendants' claimed experience in insuring
truckers. Compl. *4. Defendants were aware that Barker counted on
them to secure all required insurance. Compl. *5.
Nevertheless, Defendants selected and placed a policy that did
not meet mandatory minimum financial responsibility federal trucking
standards.
Compl.
*5.
That policy
did
not
contain
a
MCS-90
endorsement, and it failed to satisfy coverage minimums. Compl. *5.
As to the latter deficiency, the minimum financial responsibility
protection required under federal law is $750,000 in liability
coverage, but the policy provided only $100,000. Compl. *2.
Penn and Clymer were severely injured in an accident caused by
Justin Colvard, while he was driving a truck for Barker. Compl. *2.
That accident occurred while the policy at issue here was in effect.
See Compl. *2-5. Thereafter, Penn and Clymer secured judgments
against the Barker & Son business in the Circuit Court of Brunswick
County, Virginia. Compl. *2. Penn was awarded damages in the amount
of $2,450,000. Compl. *2. Clymer was awarded damages in the amount
of $275,000. Compl. *2.
The insurer refused to pay the additional amount required to
meet minimum insurance standards under federal law ($650,000). See
Compl. *2-3. Barker, therefore, assigned all of its rights against
Defendants to Penn and Clymer, who now sue Defendants for their
failure to provide proper guidance and for failure to obtain proper
coverage for Barker. Compl. *2-3.
II.
Additional Factual Context
Defendants allege that the Complaint omits a substantial amount
of relevant information. Defs.' Br. 2, 4-5. This information is
discussed here, although whether it can be considered in resolving
Defendants' motion shall be addressed below.
Defendants observe that the policy at issue was ^^procured and
issued in 2004 for a policy period that terminated in 2005." Defs.'
Br. 2. Furthermore, they claim that the accident in which Penn and
Clymer were injured occurred on August 2, 2005. Defs.' Br. 2, 4-5.
And, they note that the policy at issue was previously considered
by this Court in a declaratory judgment action in 2007 (to which Penn
and Clymer were parties). See Defs.' Br. 5. In a ruling affirmed by
the Fourth Circuit in 2009, this Court found that the policy provided
3
only $100,000 in liability coverage. See Defs. Br. 2, 5. To support
'
those
factual
claims.
Defendants
attach
as
exhibits:
(1)
the
declarations pages of the policy at issue; (2) the complaint in the
declaratory judgment action (which itself includes a copy of the
policy); (3) the answers filed by Penn and Clymer in that action;
(4) the district court's final order in that action; and (5) the
Fourth Circuit's opinion affirming the district court's ruling. See
Defs.' Br. 2, 2 n.l, 4-5; Defs.' Br. Exs. A-F.^
Ill. Procedural History
The procedural history in this case is short. Penn and Clymer
filed their Complaint on November 11, 2017. They alleged six claims:
Count I-breach of contract; Count Il-breach of oral contract; Count
Ill-breach
of
implied
contract;
Count
IV-negligence;
Count
V-professional negligence; and Count Vl-direct negligence (against
Penn and Clymer personally). After Defendants filed their motion to
dismiss. Counts IV (negligence) and VI (direct negligence) were
dismissed by agreement. ORDER (ECF No. 20).
^ Defendants also submitted other documents in the record of the
declaratory judgment action with their reply brief. Defs.' Reply Br.
Exs. A-B,
4
STANDiWEUDS GOVERNING MOTIONS TO DISMISS UNDER FED. R. CIV. P. 12(b)(6)
The standards governing motions to dismiss under Fed. R. Civ.
P. 12(b)(6) are clear:
Federal
Rule
of
Civil
Procedure
8(a)(2)
requires only ^^a short and plain statement of
the claim showing that the pleader is entitled
to relief." When ruling on a motion to dismiss
[pursuant to Fed. R. Civ. P. 12(b)(6)], courts
must accept as true all of the factual
allegations contained in the complaint and draw
all
reasonable
inferences
in
favor
of
the
plaintiff.
To
survive
a
motion
to
dismiss.
Plaintiffs' factual allegations, taken as true,
must "state a claim to relief that is plausible
on its face." The plausibility standard is not
a probability requirement, but "asks for more
than a sheer possibility that a defendant has
acted unlawfully." Although it is true that "the
complaint must contain sufficient facts to
state a claim that is plausible on its face, it
nevertheless need only give the defendant fair
notice of what the claim is and the grounds on
which it rests." Thus, we have emphasized that
"a complaint is to be construed liberally so as
to do substantial justice."
Hall V. DIRECTV, LLC, 846 F.3d 757, 765 (4th Cir. 2017) (citations
omitted).
DISCUSSION
Defendants argue, inter alia, that all counts are barred by
applicable statutes of limitations. See Defs.' Br. 2. The Court
agrees and therefore grants Defendants' motion on that ground.
I.
Choice of Law
A preliminary matter involves which state's law governs the
relevant issues in this case. There is no dispute between the parties
that Virginia law governs the statutes of limitations questions at
issue here (including when a claim accrues), and the Court concurs
in the parties' assessment. See Defs.' Br. 5; Pis.' Opp'n 4 n.8.
II.
The Relevant Statutes of Limitations
Under Virginia law, for actions upon a written contract, the
limitations period is five years. See Va. Code Ann. § 8.01-246(2).
For actions upon an unwritten contract, the statute of limitations
is three years. See id. § 8.01—246(4). For professional negligence
claims, the limitations period is the same as for breach of contract.
See Browning v. Tiger's Eye Benefits Consulting, 313 F. App'x 656,
664 (4th Cir. 2009); White v. BB & T Ins. Servs., Inc., 7:10-cv-467,
2012 WL 3018048, at *5, 7 (W.D. Va. July 23, 2012).
The remaining claims involve only breach of contract and
professional negligence. Consequently, the applicable limitations
period is, at most, five years. The parties do not dispute this
conclusion. See Defs.' Br. 7-8, 13; Pis.' Opp'n 4 n.8.
Ill. Accrual
A.
The Parties' Arguments
The main dispute in this case involves when the claims accrued.
Defendants argue that the statutes of limitations began to run no
later than 2004, when the inadequate policy was issued. Defs.' Br.
8, 12-13. They also note that, even using the date of Penn and Clymer's
accident (in 2005) or the date that the declaratory judgment action
was resolved (in 2009) as the accrual date, Penn and Clymer's claims
are time barred. See Defs.' Br. 9, 12-13.
Penn and Clymer respond that injury is necessary for a claim
to accrue, and they contend that no injury occurred until the
judgments in their favor were entered against Barker & Son (less than
one year before this action was filed) because, before that time,
the insurer provided all that it had promised (by satisfying its duty
to defend). See Pis.' Opp'n 5-12.
Defendants reply that injury occurred when the improper policy
was issued. See Defs.' Reply Br. 5-10. They also note that Penn and
Clymer suffered another injury in 2005, when the accident occurred,
because after that date Barker could not secure proper insurance to
cover the accident. Defs.' Reply Br. 9. And, they observe that Penn
and Clymer were again injured in 2009 when it was conclusively
determined that the policy provided only $100,000 in coverage. Defs.'
Reply Br. 9. In short, Penn and Clymer suffered several injuries that
triggered accrual long enough ago to render the claims untimely.
B.
Virginia Accrual Law
1.
Va. Code Ann. § 8.01-230
The core of Virginia accrual law is Va. Code Ann. § 8.01-230.
That provision states:
In every action for which a limitation
period is prescribed, the right of action shall
be
deemed
to
accrue
and
the
prescribed
limitation period shall begin to run from the
date the injury is sustained in the case of
injury to the person or damage to property, when
the
breach
of contract occurs in actions ex
contractu and not when the resulting damage is
discovered, except where the relief sought is
solely equitable or where otherwise provided
under § 8.01-233, subsection C of § 8.01-245,
§§ 8.01-249, 8.01-250 or other statute.
Va. Code Ann. § 8.01-230 (emphasis added)
2.
Applicable Case Law & Accrual Standards
Although Va. Code Ann. § 8.01-230 provides basic guidance as
to Virginia accrual law, Virginia decisional law has set forth the
principles that control the resolution of the accrual question here.
i.
The Necessity of Injury
As an initial matter, the parties are correct that an ^^injury"
is necessary for a claim to accrue under Virginia law (even as to
contract-oriented or professional negligence claims). See Hensel
Phelps Constr. Co. v. Thompson Masonry Contractor, Inc., 791 S.E.2d
^ The ^^exception" clause is not relevant here.
8
734, 740 (Va. 2016); Thorsen v. Richmond SPCA, 786 S.E.2ci 453, 465
(Va. 2016); Van Dam v. Gay, 699 S.E.2d 480, 482-83 (Va. 2010). And,
^'a statute of limitations usually commences to run when injury is
incurred as a result of a wrongful act." Kiser v. A.W. Chesterton
Co., 736 S.E.2d 910, 916 (Va. 2013).
ii.
Injury Sufficient for Accrual
Although injury is necessary for a claim to accrue, the relevant
injury need not be substantial in degree or easy to discover. As the
Supreme Court of Virginia has explained:
Some injury or damage, however slight, is
essential
to
a
cause
of
action,
but it is
immaterial that all the damages resulting from
the injury do not occur at the time of the
injury. The running of the limitation period
will not be tolled by the fact that actual or
substantial damages did not occur until a later
date. Difficulty in ascertaining the existence
of a cause of action is similarly irrelevant.
Van Dam, 699 S.E.2d at 482-83.
In accordance with this principle, the Supreme Court of Virginia
has held, on numerous occasions, that measurable or meaningful
damages are not necessary for claims to accrue. Rather, any fixed
injury is sufficient.
For example, in Van Dam, an attorney negotiated a divorce
property settlement that allocated the husband's survivor benefits
from his federal retirement pay to his wife. Van Dam, 699 S.E.2d at
480. That settlement was incorporated into the final divorce decree.
but the wife was ultimately denied the survivor benefits under
federal law. Id. In a legal malpractice action against the attorney,
the Supreme Court of Virginia held that ''the plaintiff suffered a
legal injury arising out of the defendant's malpractice when the
final decree
of divorce, incorporating the
defective
property
settlement agreement, was entered by the circuit court," not, as the
plaintiff argued, on "the death of her former husband in 2006, when
her right to survivors' benefits would have arisen but for the
defendant's malpractice." Id. at 481-82.^ As the Supreme Court of
Virginia later explained, "[a]lthough the plaintiff in Van Dam
similarly suffered primary monetary damage at the time of her
ex-husband's death due to lost survivor benefits, the Court found
some initial injury took place at the time the divorce decree was
entered," which was "when the parties' rights were fixed." Thorsen,
786 S.E.2d at 466.
The Thorsen and Van Dam courts also discussed an earlier legal
malpractice case, MacLellan v. Throckmorton, 367 S.E.2d 720 (Va.
1988). There, the plaintiff "received erroneous advice on his
Property Settlement Agreement [(that provisions could be modified)],
which was entered by the court as part of his divorce decree, but
^ That is a harsh rule, but it is settled Virginia law. And, a federal
court sitting in diversity is not authorized to revise state
decisional law. Any change must be effected by the Supreme Court of
Virginia or by the Commonwealth's legislators.
10
suffered monetarily from that harm only years later when his income
changed." Thorsen^ 786 S.E.2d at 466; Van Dam^ 699 S.E.2d at 481.
Again, however, "the statute of limitations on plaintiff s right of
action ran from the entry of the divorce decree, when the parties'
rights were fixed." Thorsen, 786 S.E.2d at 466. And:
[The Supreme Court of Virginia] reached
[the result in MacLellan] despite the fact that
the plaintiff did not become aware of the
malpractice until after the limitation period
had run, and even if he had been aware of it in
time, he would have then been unable to quantify
his damages with precision. His injury arising
from the attorney's malpractice occurred when
the court entered a final decree of divorce
incorporating a property settlement agreement
that, contrary to the attorney's assurance, was
not subject to change.
Van Dam, 699 S.E.2d at 482.
Likewise, in Hensel Phelps Construction Co. v. Thompson Masonry
Contractor, Inc., 791 S.E.2d 734 (Va. 2016), subcontractors
completed a construction project in a defective manner and were sued
by the prime contractor after it was sued by the client. Id. at 736-37.
The prime contractor argued that it "had no cause of action upon the
breach of performance . . . until 2014," when the case against the
prime contractor settled, because before that time it had "sustained
no damages." Id. at 737-38, 740. The Supreme Court of Virginia found
that argument to be unavailing, holding that:
Under
its
subcontracts,
had
Hensel
Phelps
diligently attended to inferior work performed
pursuant to its contract with the Commonwealth,
11
it could have required subcontractors to fix any
faulty or inferior work for five years following
the breach in performance. This Court has
recently reiterated that, ^'while some injury or
damage, however slight, is required for a cause
of action to accrue, ^it is immaterial that all
the damages resulting from the injury do not
occur at the time of the injury.'"
Id. at 740 (citations omitted). Thus, the prime contractor was harmed
by the subcontractors' inferior work under the subcontracts, even
if that inferior work did not cause meaningful damages until later.
Finally, in Shipman v. Kruck, 593 S.E.2d 319 (Va. 2004), an
attorney
^^erroneously
assessed . . . trust
documents
as
establishing an irrevocable trust when he advised the Shipmans to
file bankruptcy," which resulted in the sale of his clients'
residence (and the clients' repurchase of it). Id. at 321. In a
malpractice action against the attorney, the clients argued that the
statute of limitations did not begin to run until ''the bankruptcy
court finally adjudicated the Trust to be revocable and therefore
a nonexempt part of the Shipmans' bankruptcy estate . . . . because
until that point in time they had no injury or damages." See id. at
322. The Supreme Court of Virginia rejected that position:
Upon the filing of the bankruptcy petition
the Shipmans incurred a legal injury. Although
the injury could not be delineated as a sum
certain or reflected as a final judgment on the
merits, there was injury sufficient to commence
a cause of action for legal malpractice. First
and foremost, the Shipmans lost control of their
assets to the Bankruptcy Trustee, including the
power to revoke the Trust and receive the
12
reversion. The filing of the bankruptcy, in and
of itself, vested those rights in the Bankruptcy
Trustee as a matter of law. This injury in
particular countermanded their express wishes
to protect the Trust property from their
creditors. Even the Shipmans' right to bring a
legal
malpractice
claim
vested
in
the
Bankruptcy Trustee, which necessitated their
initial nonsuit. Further, the Shipmans admitted
in their motion for judgment that in addition
to the costs of repurchasing their residence,
they incurred ^^additional costs in legal fees,
litigation costs, and other costs associated
with the bankruptcy filing and litigation."
Id. at 323 {emphasis added) (citations omitted).
iii. When Accrual Occurs in the Failure to Procure
Insurance Context
Because of the decisions of the Supreme Court of Virginia on
the accrual/injury issue, numerous courts have taken the view that
an action for failure to procure insurance accrues when a breach of
the duty to procure insurance occurs, such as when a defective policy
is placed, not when a payout under the intended policy would have
vested.
One example is Cunningham Bros. Used Auto Parts, Inc. v. Zurich
American Insurance Co., 6:17-cv-51, 2017 WL 4707464 (W.D. Va. Oct.
19, 2017). There, the plaintiff's renewed insurance policy added an
endorsement that left it with no coverage for a fire that disrupted
business. Id. at *2. The plaintiff alleged that it had contracted
with the insurer that provided the policy ^^because its agent promised
that its coverage would be better at less cost than Plaintiff s
13
existing coverage," that a contract existed whereby the defendant
(a
third-party
entity)
"was
responsible
for
servicing
[the
plaintiff's] insurance needs through [the insurer]," and that the
defendant breached that contract by "failing to perform three duties:
(1) alert [the plaintiff] of [the endorsement's] negative impact on
its coverage; (2) prevent the endorsement from being added by having
Plaintiff submit a statement of financial condition; and (3) ensure
that [the plaintiff's] original coverage remained intact." Id. at
*1-2 (citations omitted). The plaintiff argued that "there could have
been no cause of action," and hence no running of the statute of
limitations, "until there was actually harm to Plaintiff in the form
of losing its expected insurance payout as a result of the loss."
Id. at *3.
The
district
limitations
began
court,
running
however,
the
held
that "the
statute
of
moment the [renewed] insurance
contract in effect was signed." Cunningham, 2017 WL 4707464, at *3-4.
It observed that "the statute of limitations starts to run at the
first sign of injury—no matter how slight or minor." Id. at *4. It
took the view that the plaintiff was "injured" when the defendant
"fail[ed] to adequately inform Plaintiff of the consequences of
signing the insurance contract" and the plaintiff "lost its bargain
to receive coverage equal to or better than what it had before." Id.
14
at *3-4/
Likewise, in Mulvey Construction, Inc. v. Bituminous Casualty
Corp., 571 F. App'x 150 {4th Cir. 2014), a third-party insurance
agency issued certificates of insurance stating that two companies
had been added to an existing insurance policy when, in fact, those
companies had not been made additional insureds. Id. at 152-53. The
insurer later refused to defend the two companies in a lawsuit, and
one of the companies (and its insurer) sued for a declaratory judgment
that they were entitled to coverage and payment. Id. at 153. The
Fourth Circuit, by unpublished disposition, concluded that any
breach of the contract requiring the third-party insurance agency
to obtain insurance occurred no later than the date that the "final
certificate of insurance—the contract Appellants assert required
their being insured by [the insurer]—was issued" despite the fact
that "Appellants were never added to the insurance." Id. at 162. The
Court of Appeals based that conclusion on the fact that, "[ujnder
Virginia law, the statute of limitations accrues on the date of
breach, not the date of [sic] the resulting damage is discovered."
Id. The Fourth Circuit, in essence, determined that injury occurred
^ Penn and Clymer suggest that Cunningham was wrongly decided because
it conflated a breach of duty with a breach of contract (which
requires an injury) and never pointed to an actual injury. See Pis.'
Opp'n 5, 17. However, Cunningham directly addressed the injury
question, and, in fact, pointed to the injury that triggered the
running of the statute of limitations. Cunningham, 2017 WL 4707464,
at *3-4.
15
at the moment the contract that erroneously stated that the companies
had been made additional insureds was issued by the third-party
insurance agency. At that time, the contractual rights became fixed,
and the companies lost the benefit of their agreement.^
Finally, in Autumn Ridge, L.P. v. Acordia of Virginia Insurance
Agency, Inc., 613 S.E.2d 435 (Va. 2005), an insurance broker failed
to procure insurance that listed certain limited partnerships as
named insureds. Id. at 436-38. The Supreme Court of Virginia held:
that, when the intended insured suffers a loss,
the measure of damages for failure to procure
insurance is the amount that would have been due
under the policy. However, when no loss has
occurred, the measure of damages is the amount
paid by the intended insured as the premium. ^^In
case of a failure to issue a policy, the right
to recover is fully matured when the agreement
is violated, and the party to whom it was to be
issued is not obliged to wait until his property
is
destroyed . . . before
instituting
an
action for damages.''
Id. at 440 (emphasis added) (citations omitted).® Although Autumn
® Cunningham offered an abbreviated description of Mulvey, stating
that [t]he Fourth Circuit has held under similar facts that the three
year statute of limitations begins to run the date the insurance
contract in question is issued." See Cunningham, 2017 WL 4707464,
at *3. It is probably more accurate to say that Mulvey held that the
statute of limitations began to run from the date that the agreement
to procure insurance was violated in a fixed manner. That does not
change the overall correctness of the Cunningham opinion, and it is
clear that an agreement to procure insurance would be violated in
a fixed manner at the moment a deficient insurance policy is issued.
® The Autumn Ridge holding applied to both negligence and breach of
contract claims. See Autumn Ridge, 613 S.E.2d at 440.
16
Ridge was not addressing a statute of limitations issue, the decision
clearly informs the accrual question.^
3.
Conclusion as to Accrual
In sum, it is clear that, for a claim to accrue, only a very
slight injury is required. In the failure to procure insurance
context, sufficient injury (and accrual) occurs when the duty to
procure adequate insurance is violated in some fixed manner, such
as when a deficient policy is signed or placed.
C.
Analysis
The position of Penn and Clymer that no claim accrued until the
judgments were entered against Barker & Son cannot be supported,
given the foregoing principles. Their primary argument is that no
injury happened pre—judgment" because the insurer never breached its
duty to defend. Pis.' Opp'n 10-11. In particular, the argument seems
'' Any doubt as to that conclusion is obviated by the source of the
emphasized sentence in the block-quoted passage: Everett v. O'Leary,
95N.W. 901, 902 (Minn. 1903). That case, and the emphasized sentence,
did relate to when a claim for failure to procure insurance accrues.
Id. And, the Everett court went on to clarify: ''If, when a suit is
brought, there has been no destruction by fire, the plaintiff can
recover the amount paid as the premium; and, of course, such an action
must be brought within the period of six years-a reasonable time being
given in which to issue the policy. The person to whom the policy
should have been issued may, however, take chances upon a loss, and,
if one occurs, bring his action to recover actual damages; but his
right to sue upon a breach of the contract, and consequently the time
when that right matures, cannot be made to depend upon the fact of
a loss. A cause of action accrues when the holder of the right to
bring the action can apply to the court for relief, and is enabled
to commence proceedings to enforce his rights, and from this time
the statute of limitations is running." Id. at 902-03.
17
to be that, because monetary losses caused by Defendants' failure
to procure the proper policy were contingent upon Barker losing in
court (after being defended by the insurer), no injury occurred until
Barker in fact lost.
That view, however, rests upon a misunderstanding of Virginia
accrual law. As set out above, a claim accrues in the failure to
procure insurance setting when a fixed violation of the duty to obtain
insurance occurs, such as when a deficient insurance policy is
issued. That is because only a slight injury as a result of the breach
is necessary to trigger accrual. Loss of the "bargain to receive [the]
coverage" sought is sufficient. See Cunningham, 2017 WL 4707464, at
*3-4.
To be sure, an injury occurred once judgments were entered
against Barker & Son and the insurer refused to pay more than the
coverage limits of the inadequate policy. But, the first injury
occurred when Defendants saddled Barker with an insurance policy that
did not contain the terms that Barker had contracted with Defendants
and relied on them to obtain. It was at that point that Defendants'
duty to procure insurance was violated and fixed injury occurred
(given that Barker was now bound by an insurance contract that did
not meet its needs or expectations).
It is true that, as Penn and Clymer suggest, substantial damages
were contingent until the judgments were entered. See Pis.' Opp'n
18
10-11. But, that is of no moment, for two reasons. First, the Supreme
Court of Virginia has expressly held that, 'Mi]n case of a failure
to issue a policy, the right to recover is fully matured when the
agreement is violated, and the party to whom it was to be issued is
not obliged to wait until his property is destroyed," i.e., until
a covered loss occurs, ^^before instituting an action for damages."
See Autumn Ridge, 613 S.E.2d at 440 (citations omitted). Thus, the
"contingency" of a policy-triggering loss is irrelevant to when a
claim for failure to procure insurance accrues.
Second, it is clear that slight injury (even that which "could
not be delineated as a sum certain or reflected as a final judgment
on the merits") is sufficient, notwithstanding that the lion's share
of damages are contingent. See Shipman, 593 S.E.2d at 323. Hence,
in Hensel Phelps, injury was found to have occurred when the
subcontractors performed deficient work, even though monetary losses
were contingent on whether the prime contractor would be sued and
settle (or lose). Hensel Phelps, 791 S.E.2d at 736-37, 740. Likewise,
in Van Dam, injury was found to have attached when the divorce decree
was entered, even though the primary losses were contingent upon a
later determination that the plaintiff was ineligible for her
ex-husband's survivor rights. Van Dam, 699 S.E.2d at 480-82; see also
Thorsen, 786 S.E.2dat 466. Similarly, in MacLellan, injury occurred
when the divorce decree was entered, even though any substantive
19
damages were contingent upon the plaintiff's income changing and him
seeking (in vain) to alter the agreement. See Thorsen, 786 S.E.2d
at 466; Van Dam, 699 S.E.2d at 481-82. And, in Shipman, the plaintiff
was injured ^'[u]pon the filing of the bankruptcy petition," even
though any meaningful losses were contingent upon the bankruptcy
court finding the trust at issue to be revocable. Shipman, 593 S.E.2d
at 322-23.
In sum, the duty to procure insurance was breached and the first
injury occurred when the legally insufficient policy was placed by
Defendants. On that date, this action accrued within the meaning of
Va. Code Ann. § 8.01-230, and the statutes of limitations began to
run then.®
® Penn and Clymer argue that Shipman supports their view that the
earliest possible injury was the entry of the judgments. See Pis.'
Opp'n 11-12 (''Furthermore, in pointing to a judgment as enough injury
to start the clock, the Supreme Court of Virginia through Shipman
necessarily implied that the mere presence of facts potentially
leading to a judgment would not constitute a sufficient injury.").
That is erroneous. See Shipman, 593 S.E.2d at 323 ("Upon the filing
of the bankruptcy petition the Shipmans incurred a legal injury.
Although the injury could not be delineated as a sum certain or
reflected as a final judgment on the merits, there was injury
sufficient to commence a cause of action for legal malpractice."
(emphasis added)). Shipman did state that "a client who suffers the
entry of a judgment against him indeed suffers a legal injury or
damage," but it never suggested that no injury can occur before a
judgment. See id. at 325-27. And, it made that statement in the
specific context of overturning a previous decision that had held
that, in an action for legal malpractice, "[w]hen a client has
suffered a judgment for money damages as the proximate result of his
lawyer's
negligence
such
judgment
constitutes
actual
damages . . . only to the extent such judgment has been paid." Id.
20
IV.
Extrinsic Evidence & the Relevant Facts
A.
The Parties' Arguments
The second major dispute between the parties is whether the
Court may rely upon extrinsic evidence to establish facts relevant
to accrual, particularly the timelines applicable to the statutes
of limitations issue. Defendants ask the Court to consider the
documents attached to their brief. See Defs.' Br. 4. They point out,
as set forth above, that "Plaintiffs do not provide a single date
for any of [the relevant] events in their eleven-page Complaint."
Defs.' Br. 2.
Penn
and
Clymer
counter
that
"[t]he
policy
documents
[Defendants] offer are not admitted as authentic or accurate by [Penn
(citations omitted). The court noted that the overturned case did
not involve a statute of limitations issue and, in any case, was
inconsistent with the rule that "even slight damage sustains a cause
of action."
at 325-26. Penn and Clymer otherwise discuss
Shipman at length and attempt to analogize their case to it, but,
as set out above, the principles described in Shipman do not help
them. See Pis.' Opp'n 7-11.
Additionally, Penn and Clymer point to Harris v. K & K Ins.
Agency, Inc., 453 S.E.2d 284 (Va. 1995).
Pis.' Opp'n 14-16. They
contend that it helps their position because the trial court in that
case found that a claim accrued not when a flawed policy issued, but
rather when an uncovered fire occurred, and the Supreme Court of
Virginia did not question that conclusion. See Pis.' Opp'n 15. But,
Harris involved certified questions to the Supreme Court of Virginia
from the Fourth Circuit, so the Supreme Court of Virginia would not
have addressed issues extraneous to the questions presented. See
Harris, 453 S.E.2d at 285. And, in any event, the accrual date issue
was never appealed to the Fourth Circuit. See Harris v. K & K Ins.
Agency, Inc., 53 F.3d 328, 1995 WL 225531, at *2 (4th Cir. 1995)
(table) (per curiam). Harris is not relevant.
21
and Clymer], and they never have been" {either in this action or the
declaratory judgment action). Pis.' Opp'n 13-14. They suggest (but
offer no support on the point) that it is possible that the policy
was formally issued after coverage began. Pis.' Opp'n 13, 13 n.l2.
Thus, they claim, ''at least a factual question remains as to when
the policy here actually issued." Pis.' Opp'n 14.
Defendants reply, in essence, by contesting the credibility of
the refusal to admit the authenticity of the documents. See Defs.'
Reply Br. 10-11. They assert that Penn and Clymer previously, in the
declaratory judgment action, asked this Court to determine the amount
of coverage under the policy and stated that the terms of the policy
were undisputed, and that, therefore, judicial estoppel should apply
here. Defs.' Reply Br. 10-11.
B.
The Relevant Law
The legal standards necessary to resolve this issue are
straightforward. As this Court has explained:
Ordinarily, [on a motion to dismiss,] a
court may not consider any documents that are
outside of the complaint, or not expressly
incorporated therein, without converting the
motion into one for summary judgment. However,
there are a number of exceptions to this rule.
Specifically, a court "may consider official
public records, documents central to a
plaintiff's claim, and documents sufficiently
referred to in the complaint, so long as the
authenticity of these documents is not
disputed," without converting the motion into
a motion for summary judgment.
22
Stoney Glen, LLC v. S. Bank & Tr. Co., 944 F. Supp. 2d 460, 464 (E.D.
Va. 2013) (citations omitted); see also Rockville Cars, LLC v. City
of Rockville, 891 F.Sd 141, 145 (4th Cir. 2018) (^'While considering
a 12(b)(6) motion, we 'may consider documents attached to the
complaint or the motion to dismiss 'so long as they are integral to
the complaint and authentic.'"' (citations omitted)); Witthohn v.
Fed. Ins. Co., 164 F. App'x 395, 396-97 (4th Cir. 2006) (per curiam)
("[T]here are exceptions to the rule that a court may not consider
any documents outside of the complaint. Specifically, a court may
consider official public records, documents central to plaintiff's
claim, and documents sufficiently referred to in the complaint so
•
9
long as the authenticity of these documents is not disputed.").
C.
Analysis
Penn and Clymer have taken a distinctly ostrich-like approach
to the statutes of limitations issue in this case. They omitted any
and all references to time in their Complaint. Compl. *1-11. They
even omitted such basic facts as when the policy over which they are
^ A statute of limitations defense may be decided upon on a motion
to dismiss. See Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir.
2007). Typically, a court may only do so "if all facts necessary to
the affirmative defense 'clearly appear[] on the face of the
complaint.'" Id. (citations omitted). The Court does not read this
principle as barring consideration of other materials that may be
properly reviewed in resolving a motion to dismiss. See Guerrero v.
Weeks, l:13-cv-837, 2013 WL 5234248, at *4 n.2 (E.D. Va. Sept. 16,
2013) (deciding to consider extrinsic documents in evaluating a
statute of limitations defense on a motion to dismiss), aff'd, 555
F. App'x 264, 265 (4th Cir. 2014) (per curiam).
23
suing was issued and when the accident in this case occurred. Compl.
*1-11. They have also omitted reference to documents that might
time-stamp the events depicted in their Complaint, such as the
declaratory judgment decision. Compl. *1-11. Then, when Defendants
proffer documents that establish the omitted timeline, Penn and
Clymer (weakly) fight the documents' authenticity. Pis.' Opp'n
13-14. They seem to be hoping that, if they can bury their heads in
the sand as to the statutes of limitations issue for long enough,
it will go away. Unfortunately for them, it will not. And, Penn and
Clymer have failed to hide the relevant timeline well enough to
prevent the Court from considering it now.^°
As set forth above, certain extrinsic documents may be
considered on a motion to dismiss so long as the documents
authenticity is not questioned. Here, it is arguable that the
authenticity of 'Mt]he policy documents [Defendants] offer" is
disputed. See Pis.' Opp'n 13. So, the Court will not consider those
documents.
However, nothing in the Opposition submitted by Penn and Clymer
suggests that they dispute any of the other documents relied on by
Defendants, i.e., those that are not ''policy documents." See Pis.'
Opp'n 13-14. There seems to be no quarrel with, for example, the
The Court is troubled by this approach to pleading and briefing,
particularly where, as here, the dates have been established as a
consequence of earlier litigation.
24
authenticity of the Fourth Circuit's opinion in the declaratory
judgment action. See Defs.' Br. F (Canal Ins. Co v. Barker, 358 F.
App'x 470 (4th Cir. 2009) (per curiam)). Indeed, they implicitly
concede that the declaratory judgment action related to the policy
here. See Pis.' Opp'n 14 (''Nor did adequate discovery happen in the
earlier declaratory judgment action to allow [Penn and Clymer] to
uncover
[details
respecting
when
the
policy
here
actually
issued]."). At best, Penn and Clymer assert that they never admitted
that the policy document offered by the insurer in that action was
accurate. Pis.' Opp'n 13-14. But, that relates to the specifics of
the policy, not the authenticity of the Fourth Circuit's opinion or
its connection to the policy at issue here (whatever its precise terms
or contents
The Fourth Circuit opinion is obviously a public record. It is
also independently central to the claims of Penn and Clymer because
it resolved the coverage amounts provided by the policy at issue.
There can be no doubt that the declaratory judgment action involved
the policy at issue here, given the similarities between the
declaratory judgment action and this case. According to the Fourth
Circuit opinion, the declaratory judgment action dealt with, inter
alia: (1) an accident involving Penn and Clymer and Justin Colvard
(driving a truck owned by Barker) in Brunswick County, Virginia; (2)
an insurance policy issued to Barker that provided $100,000 in
coverage, was in force at the time of the accident, and contained
no MCS-90 endorsement; and (3) allegations that federal regulations
required coverage of $750,000. Defs.' Br. Ex. F 3-5, 16. The Fourth
Circuit also observed that 1st Southern was "apparently acting as
insurance agent to Barker." Defs.' Br. Ex. F 16.
25
See
Defs.'
Ex.
F 3 ("The
district court rejected
Appellants'
contention that Virginia Code § 46.2-2143 or federal regulations
would operate to increase the policy's limit to $750,000 . . . and
instead granted Canal's Motion for Judgment on the Pleadings that
the policy was limited to the face amount of $100,000 listed on its
declaration page. We agree and affirm the judgment."). Cf. Compl.
*2 ("But Barker's policy placed by [Defendants] provided only
$100,000 in liability coverage, not the $750,000 minimum financial
responsibility
protection
required
under
federal
law.").
Accordingly, and because the authenticity of the Fourth Circuit
opinion is not disputed, the Court will consider that opinion here.
As discussed above, the Fourth Circuit opinion decided the
actual coverage limits of the policy at issue in this case. Even if
the policy was issued after coverage took effect, the issuance date
could not have been subsequent to a judicial decision respecting its
terms. And, the Fourth Circuit opinion made clear that the policy
had been issued before the case was submitted for consideration. See
Defs.' Ex. F 3. Thus, Defendants must have placed the policy before
the date of the decision. The opinion was issued on December 31, 2009.
Defs. Ex. F 1.^^
'
The policy actually must have been placed far earlier than the date
of the Fourth Circuit decision. The opinion and final order of the
district court that the Fourth Circuit opinion affirmed were signed
on November 14, 2007 (and filed on November 15, 2007). See Defs.'
26
IV.
Aether the Statutes of Limitations Have Run
The applicable limitations period is, at most, five years. That
period began when the legally insufficient policy was placed by
Defendants. This case was filed on November 11, 2017. Even using the
date of the Fourth Circuit's opinion in the declaratory judgment
action as the accrual date (notwithstanding the fact that the claims
quite clearly accrued well before that date), the limitations period
would have expired on December 31, 2014. Consequently, the claims
presented here by Penn and Clymer are time barred, and DEFENDANTS'
RULE 12(b)(6) MOTION TO DISMISS (EOF No. 7) will be granted.
CONCLUSION
For
the
DEFENDANTS'
reasons
RULE
set
12(b)(6)
forth
above,
MOTION
TO
the
DISMISS
Court
(EOF
will
No.
grant
7). The
Complaint (ECF No. 1) will be dismissed with prejudice.
It is so ORDERED.
/s/
Robert E. Payne
Senior United States District Judge
Richmond, Virginia
Date: July /g, 2018
Br. Ex. E; Canal Ins. Co. v. Barker, 3:07-cv-339, 2007 WL 3551508
(E.D. Va. Nov. 15, 2007) (ECF No. 45). The district court's opinion,
like that of the Fourth Circuit, resolved the actual coverage limits
of the policy and showed that the policy had been issued before the
district court rendered its decision. Canal, 2007 WL 3551508, at *1,
6-7. Hence, the policy must have been placed before November 14, 2007.
27
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