The West Virginia Mutual Insurance Company v. Vargas et al
Filing
61
MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS MOTION FOR SUMMARY JUDGMENT DKT. NO. 55 AND DENYING DEFENDANTS MOTION FOR SUMMARY JUDGMENT DKT. NO. 53 ; Pursuant to Fed. R. Civ. P. 58, the Court directs the Clerk ofCourt to enter a separate judgment order. Signed by District Judge Irene M. Keeley on 3/20/2013. (Copy counsel of record via CM/ECF)(jmm)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
THE WEST VIRGINIA MUTUAL INSURANCE
COMPANY, a West Virginia Corporation,
Plaintiff,
v.
Civil No. 1:11-CV-32
(Judge Keeley)
ANA CORTES VARGAS,
Defendant.
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 55] AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 53]
Pending before the Court are the parties’ competing motions
for summary judgment. The plaintiff, the West Virginia Mutual
Insurance Company (“West Virginia Mutual”), seeks a declaration
that the available limit of liability under the Extended Reporting
Endorsement (“tail endorsement” or “tail policy”) it issued to Dr.
Richard R. Lotshaw (“Lotshaw”) is $687,235.79. (Dkt. No. 55). The
defendant, Ana Cortes Vargas (“Vargas”), seeks a declaration that
the available limit of liability under Lotshaw’s tail endorsement
is $1,000,000, and that any costs associated with providing a
defense to Lotshaw in Vargas’s malpractice action are supplemental
to
–
and
not
within
–
that
policy
limit.
(Dkt.
No.
53).
Alternatively, Vargas seeks reformation of Lotshaw’s tail policy.
The motions are fully briefed and ripe for review. For the reasons
that follow, the Court GRANTS West Virginia Mutual’s motion for
summary judgment (dkt. no. 55) and DENIES Vargas’s motion for
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
summary judgment. (Dkt. No. 53). The Court DECLARES the available
liability limits under West Virginia Mutual’s tail policy to
satisfy
the
claims
in
the
case
of
The
West
Virginia
Mutual
Insurance Company vs. Ana Cortes Vargas, Civil Action No. 11-CV-32
to be $687,530.79.
I.
The material facts in this case are not in dispute. (Dkt. No.
53 at 2). Lotshaw performed surgery on Vargas on July 20, 2007.
Approximately four months after that surgery, Lotshaw canceled his
medical professional liability policy with West Virginia Mutual,
which provided up to $1,000,000 in liability insurance per medical
incident. In its place, he purchased a tail endorsement from West
Virginia Mutual. “‘Tail insurance’ . . . covers a professional
insured
once
a
claims
made
malpractice
insurance
policy
is
canceled, not renewed or terminated and covers claims made after
such cancellation or termination for acts occurring during the
period the prior malpractice insurance was in effect.” W. Va. Code
§ 33-20D-2(a). Lotshaw elected to pay the $103,406 premium for his
tail insurance in quarterly installments over a three-year period.
On July 17, 2009, Vargas sued Lotshaw for malpractice related
to her July 2007 surgery. When Vargas filed her lawsuit, Lotshaw
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1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
was current on all quarterly installment payments for his tail
insurance. After Vargas sued him, however, he defaulted on his next
quarterly installment due on January 31, 2010, and he never paid
another premium. (Dkt. No. 55-1 at 12).
Following Lotshaw’s failure to make his January 2010 quarterly
installment payment, West Virginia Mutual informed him in a letter
dated February 10, 2010 that, unless he paid the entire balance due
on his $103,406 premium by March 17, 2010, it would take the
following actions:
•
Reduce his tail endorsement’s liability limits by a “pro-rata
reduction . . . based upon the amount of premium that you have
paid as a ratio to the total amount due;” and
•
Include
in
the
tail
endorsement’s
liability
limits
all
previously supplemental costs, including the costs associated
with defending Vargas’s malpractice case.
(Dkt. No. 55-1 at 12). Despite this notice, Lotshaw failed to pay
the remaining balance on his tail policy. (Dkt. No. 55-1 at 14).
West
Virginia
Mutual
therefore
amended
Lotshaw’s
policy
in
accordance with its February 10, 2010 notice. At the time of his
default, Lotshaw had paid $77,585 of the $103,406 total premium due
on his tail policy. (Dkt. Nos. 56 at 3; 60 at 4). Due to his
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
default, West Virginia Mutual reduced the limits of his policy prorata from $1,000,000 per incident to $750,005, to reflect the
amount of the premium he had paid. (Dkt. No. 55-1 at 15-16). It
also allocated defense costs associated with the Vargas litigation
to
fall
within
that
reduced
liability
limit,
a
move
that
effectively reduced Lotshaw’s liability limits even further. West
Virginia Mutual maintains that, under the terms of its tail policy,
those reductions apply to all claims made after October 31, 2007,
the date Lotshaw canceled his malpractice policy, and are thus
applicable to Vargas’s claim. (Dkt. No. 55-1 at 13, 15).
Vargas settled her malpractice claim with Lotshaw in August
2011. (Dkt. No. 56 at 5). Subsequently, West Virginia Mutual filed
this action seeking a determination of the amount of insurance
proceeds available under Lotshaw’s tail policy to settle Vargas’s
claim. (Dkt. No. 3). Vargas has conceded that West Virginia Mutual
may interplead the liability limits of its tail endorsement, but
she disputes the actual amount of those limits. (Dkt. No. 8 at ¶
18).1 Lotshaw’s personal liability is not an issue in this action.
(Dkt. No. 35).
1
Although West Virginia Mutual initially named its insured,
Lotshaw, as a defendant, it later dismissed him on August 19, 2011
pursuant to a joint stipulation. (Dkt. No. 35).
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THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
At the heart of the parties’ dispute is whether, following
Lotshaw’s
default,
West
Virginia
Mutual’s
reduction
of
the
liability limits of his tail policy was lawful. West Virginia
Mutual contends that it was, and that its inclusion of the costs
associated with the defense of the Vargas malpractice case is also
lawful. It therefore asserts that the amount of the policy limits
available to settle Vargas’s claim is $687,235.79. (Dkt. No. 3 at
7).
Vargas, on the other hand, argues that West Virginia Mutual’s
reduction of Lotshaw’s liability limits following his default on
his premium payments is ineffective under West Virginia law, and
that the available coverage should be $1,000,000. (Dkt. No. 8 at ¶
23). In the alternative, she contends that the policy limits should
be $974,473.86 (the original liability limit of $1,000,000 minus
the cost of defending Vargas’s malpractice case). Id. at ¶ 29.
II.
A. Summary Judgment
A moving party is entitled to summary judgment “if the movant
shows that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). A genuine issue of material fact exists “if the
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
evidence is such that a reasonable jury could return a verdict for
the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986). In applying the standard for summary judgment, the
Court must review all the evidence “in the light most favorable to
the nonmoving party.” Providence Square Assocs., L.L.C. v. G.D.F.,
Inc., 211 F.3d 846, 850 (4th Cir. 2000). The Court must avoid
weighing the evidence or determining the truth and limit its
inquiry solely to a determination of whether genuine issues of
triable fact exist. Anderson, 477 U.S. at 248. The same standard
applies to cross motions for summary judgment. See Rossignol v.
Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (“When faced with
cross-motions for summary judgment, the court must review each
motion separately on its own merits ‘to determine whether either of
the parties deserves judgment as a matter of law.’”) (quoting
Philip Morris Inc. v. Harshbarger, 122 F.3d 58, 62 n. 4 (1st Cir.
1997)).
B. Declaratory Judgment
The Declaratory Judgment Act authorizes district courts to
“declare the rights and other legal relations of any interested
party seeking such declaration.” 28 U.S.C. § 2201. In the Fourth
Circuit, “a declaratory judgment action is appropriate ‘when the
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THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
judgment will serve a useful purpose in clarifying and settling the
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) (citing Aetna Cas. & Sur.
Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937) (internal citation
omitted)). Here, because the entry of a declaratory judgment will
resolve the parties’ dispute over the applicable liability limits
of Lotshaw’s tail policy, the Court’s exercise of jurisdiction over
this matter is proper.
Pursuant to Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938),
the applicable law in a diversity case such as this is determined
by the substantive law of the state in which a district court
sits.2 This includes the forum state’s prevailing choice of law
rules. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487,
496–97 (1941). The parties agree that the substantive law of West
Virginia governs the interpretation and application of the tail
endorsement.
2
It is undisputed that the parties are diverse and more than
$75,000 is in controversy. Thus, the Court has subject matter
jurisdiction over this matter. See 28 U.S.C. § 1332.
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
III.
The Court must apply the well-settled law of West Virginia
that, “‘[w]here provisions of an insurance policy are plain and
unambiguous
and
where
such provisions
are not
contrary
to a
statute, regulation or public policy, the provisions will be
applied and not construed.’” Progressive Paloverde Ins. Co. v.
Hartford Fire Ins. Co., 356 F.3d 524, 527 (4th Cir. 2004) (quoting
Deel v. Sweeney, 383 S.E.2d 92, 94 (W. Va. 1989)). Neither party
argues that the terms of Lotshaw’s tail endorsement are ambiguous.3
Rather, they focus on whether the terms of that insurance policy
are enforceable under West Virginia law.
A. West Virginia Mutual’s Motion for Summary Judgment
West Virginia Mutual asserts that the terms of its tail
endorsement comply with and are enforceable under applicable West
Virginia law. In West Virginia, a medical malpractice insurer such
as West Virginia Mutual
must, “[u]pon cancellation, nonrenewal or
termination of any claims made professional malpractice insurance
policy . . . offer to the insured tail insurance coverage.” W. Va.
3
Although Vargas alleged in her counterclaim that the tail
endorsement language regarding the inclusion of defense costs
within the physician’s liability limits upon a default is ambiguous
(dkt. no. 8 at ¶ 26), she has not raised that issue on summary
judgment.
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
Code § 33-20D-3(a). The insurer also must offer the purchaser of a
tail endorsement “the opportunity to amortize the payment of
premiums
for
tail
insurance
over
a
period
of
not
more
than
thirty-six months, in quarterly payments.” Id. § 33-20D-3(b). It is
undisputed
that
West
Virginia
Mutual
offered
Lotshaw
a
tail
endorsement when he canceled his medical malpractice insurance, and
also offered him the option of paying his premium for the tail
endorsement in quarterly installments over a 36 month period (dkt.
no. 55-1 at 4-5), which Lotshaw accepted..
Pursuant to W. Va. Code § 33-20D-3(c), malpractice carriers
such as West Virginia Mutual must submit to the West Virginia
Insurance Commissioner a plan to determine the partial limits of a
tail policy in the event an insured defaults on an amortized
payment. See also W. Va. Code R. §114-30-6.2. West Virginia Mutual
did this. On August 23, 2005, it wrote a letter to the Commissioner
notifying him of proposed changes to its treatment of a default by
an insured paying for tail coverage in quarterly installments. That
letter stated in pertinent part:
If the physician fails to pay the installments, his/her
liability is reduced to an amount commensurate with the
premium that has been paid. . . . The change that we
request places the coverage for defense within the limit
of liability until such time as the premium is paid in
full. Once the total premium has been paid, the
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
supplementary payments revert to being outside the limit
of liability.
(Dkt. No. 55-1 at 1)(emphasis added).
The Commissioner approved this proposed change on October 24,
2005. (Dkt. No. 55-1 at 1). In light of the fact that West Virginia
Mutual submitted the proposed change to its tail policy to the
Commissioner as required by § 33-20D-3 and W. Va. Code R. §114-306.2, it complied with West Virginia law.
In the event an insured defaults on a tail policy’s quarterly
installment payment, the Commissioner’s regulations require that
“the insurer shall notify the insured by certified mail that the
entire balance is due and payable within 30 days of receipt of said
notice.” W. Va. Code R. §114-30-6.2. West Virginia Mutual wrote to
Lotshaw on February 10, 2010, notifying him of his failure to make
his quarterly installment by January 31, 2010. (Dkt. No. 55-1 at
12). That letter plainly gave Lotshaw notice of the following
possible reduction in the coverage of his tail policy:
As stated in the “WARNING” that was attached to your
original Extended Reporting Endorsement quotation,
certain coverage changes take place should you default in
payment. If the full balance is not received in our
office by March 17, 2010, the limits of liability under
your Extended Reporting Endorsement will be reduced. This
pro-rata reduction will be based upon the amount of
premium that you have paid as a ratio to the total amount
due. Further, default in payment will result in all
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
Supplementary Payments including defense costs becoming
included within the pro-rated limits of liability.
(Dkt. No. 55-1 at 12) (emphasis added). This notice complied with
W. Va. Code R. §114-30-6.2 by providing Lotshaw with five weeks (or
35 days) to pay the remaining balance of his premium.
Responding to West Virginia Mutual’s contention that its tail
endorsement complied with applicable West Virginia law, Vargas in
a footnote contends that there is a factual question about whether
Lotshaw actually received this “WARNING” (dkt. no. 55-1 at 6),
noting there is no evidence Lotshaw himself signed the return
receipt.4 (Dkt. No. 58 at 1-2 n.2). She also contends that, even if
Lotshaw received it, this notice was legally insufficient because
4
Substantive footnotes pepper Vargas’ response and, indeed,
her own motion for summary judgment. While the Court has considered the
arguments raised there, it also notes that a growing list of authority
from other circuits suggests that “arguments raised in footnotes are not
preserved” for appellate purposes. SmithKline Beecham Corp. v. Apotex
Corp., 439 F.3d 1312, 1320 (Fed. Cir. 2006); see Ethypharm S.A. France
v. Abbott Laboratories, No. 11-3602, 2013 WL 238794, at n. 13 (3d Cir.
Jan. 23, 2013) (“[A]rguments raised in passing (such as, in a footnote),
but not squarely argued, are considered waived.”) (quoting John Wyeth &
Bro. Ltd. v. CIGNA Int'l Corp., 119 F.3d 1070, 1076 (3d Cir. 1997));
Nat'l Foreign Trade Council v. Natsios, 181 F.3d 38, 60 n. 17 (1st Cir.
1999) (“We have repeatedly held that arguments raised only in a footnote
or in a perfunctory manner are waived.”); Williams v. Studivent, No.
1:09CV414, 2009 WL 3837627 (M.D.N.C. Nov. 16, 2009) (argument raised in
footnote and not pursued further in brief deemed waived); In re UBS AG
ERISA Litig., No. 08 CIV. 6696 RJS, 2012 WL 1034445 (S.D.N.Y. Mar. 23,
2012) (“Arguments which appear in footnotes are generally deemed to have
been waived.” (quoting In re Crude Oil Commodity Litig, No. 06 Civ. 6677,
2007 WL 2589482, at *3 (S.D.N.Y. Sept. 7, 2007) (citing City of Syracuse
v. Onondaga Cnty., 464 F.3d 297, 308 (2d Cir. 2006)).
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
it violated West Virginia Code § 33-20C-4(b), which requires a
ninety-day notice for nonrenewal. (Dkt. No. 58 at 1-2 n.2).
There is no material issue of fact in dispute about whether
Lotshaw received notice from West Virginia Mutual. First, it is
highly
debatable
whether
§
33-20C-4(b)
even
applies
Virginia Mutual in this case. West Virginia Mutual’s
to
West
letter dated
October 23, 2007 to Lotshaw establishes beyond per adventure that
it was Lotshaw – not West Virginia Mutual – who canceled his
medical professional liability policy. (Dkt. No. 55-1 at 4).
In
her own memorandum in support of her motion for summary judgment,
Vargas admits the same. (Dkt. No. 54 at 2). Furthermore, even if
Lotshaw somehow
did
not
receive
the
WARNING
appended
to
the
February 10, 2010 letter sent by West Virginia Mutual, he had
notice of the consequences of failing to pay his quarterly premiums
as early as November 28, 2006. In the amendatory endorsement to
Lotshaw’s medical professional liability policy, West Virginia
Mutual notified him that, should he fail to pay a quarterly
installment, the limit of his tail policy would be reduced and any
defense costs included within it. (Dkt. No. 3-1 at 7, 24). Finally,
when Lotshaw failed to pay the January 2010 quarterly installment,
West Virginia Mutual notified him of his right under the policy to
pay the remaining balance of his premium and maintain his full,
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
$1,000,000 liability limit under the tail endorsement. (Dkt. No.
55-1 at 12). In consideration of Lotshaw’s receipt of all of these
warnings, whether he signed the return receipt is not a material
issue that would bar summary judgment for West Virginia Mutual.
Based on the undisputed, material facts in this case, West
Virginia Mutual has clearly established that Lotshaw’s tail policy,
and its administration of that policy, complied with applicable
West Virginia law: West Virginia Mutual offered Lotshaw tail
insurance when he canceled his malpractice insurance; it submitted
proposed changes to its tail endorsement to the Commissioner for
approval; and it gave Lotshaw more than thirty days within which to
pay the missed premium.
B. Vargas’s Motion for Summary Judgment
Asserting that West Virginia Mutual defines the applicable law
too narrowly, Vargas advances six (6) arguments in support of her
contention that West Virginia Mutual’s tail endorsement violates
many aspects of West Virginia law and public policy. First, she
asserts that West Virginia Mutual’s reduction of liability limits
is impermissibly retroactive in violation of W. Va. Code § 33-6-21.
Second, she argues that West Virginia Mutual did not comply with
its
representations
to
the
Insurance
Commissioner
about
the
temporary nature of the defense within limits penalty, and that,
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
contrary to W. Va. Code § 33-6-21, West Virginia Mutual “annulled”
a
portion
of
Lotshaw’s
tail
insurance
when
it
reduced
the
applicable policy limits. Third, she argues that the inclusion of
defense costs within those limits violates the public policy of
West Virginia. Fourth, she contends that West Virginia Mutual
denied Lotshaw due process when it reduced his policy limits
without notice
and
a
hearing.
Fifth,
she
contends
that
West
Virginia Mutual is estopped from reducing Lotshaw’s policy limits.
Finally, she seeks reformation of the tail endorsement to allow her
to recover the original $1,000,000 liability limit, less only the
amount of the unpaid premium. The Court will address each of these
arguments in turn.
(1)
Vargas
Lotshaw’s
contends that West Virginia Mutual’s reduction of
tail
policy’s
liability
limits
was
impermissibly
retroactive in contravention of its own underwriting rules and
representations to the West Virginia Insurance Commissioner in
2005. (Dkt. No. 54 at 5). In support of her argument, Vargas relies
on West Virginia Mutual’s internal policy II.-H, “Endorsement or
Change to Policy,” which states: “Policies may be changed by
endorsement effective on the postmark date of the written request
by the agent or insured unless a later date is requested.” (Dkt.
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DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
No. 55-1 at 3). She contends that West Virginia Mutual improperly
reduced Lotshaw’s policy limits retroactively (thus applying the
reduced liability limit to her malpractice claim), rather than
prospectively from January 31, 2010, the postmarked date of the
amended tail endorsement.
According to the correspondence between West Virginia Mutual
and Lotshaw, however, neither an agent nor Lotshaw – the insured –
sought a reduction in his tail policy’s limits. See (Dkt. No. 55-1
at 12). That reduction, as well as the shifting of Lotshaw’s
defense costs
consequence
of
to
within policy
the
terms
of
limits,
his
occurred solely
tail
endorsement,
as a
which
unambiguously states that if the insured fails to pay the remaining
premium balance, the “limit of liability applicable to the extended
reporting period will be reduced pro-rata to an amount equal to the
limit of liability that would have been provided based on the
amount of additional premium paid.” (Dkt. No. 55-1 at 10).
That same provision also warned Lotshaw that, in the event he
defaulted on a quarterly installment payment, certain supplementary
payments would be included within the applicable liability limits
of his policy. Id. Thus, the reduction in the liability limit of
his tail policy was not a “change” to that policy but rather the
consequence of the application of unambiguous terms in that policy.
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DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
Therefore, because that reduction was not a “change” to the tail
policy but an integral component of it, the underwriting provision
relied on by Vargas is inapplicable to the issues in dispute.
Furthermore, W. Va. Code § 33-20D-3 contemplates the very
reduction in the liability limit of Lotshaw’s tail policy being
challenged by Vargas: “Each licensed malpractice insurer shall
submit for approval, by the commissioner, a plan for determination
of partial limits in the event of default on amortized payment.”
That section makes clear that, under Lotshaw’s tail policy, it is
the insured’s default on an amortized payment, and not the written
request of an agent or insured included in West Virginia Mutual’s
internal policy II.-H, that triggers the reduction. Thus, it was
Lotshaw’s
default
on
his
January
2010
quarterly
installment
payment, not a request by him or a West Virginia Mutual agent, that
triggered the ultimate reduction in his policy’s limits. West
Virginia Mutual’s internal policy II.-H has no applicability to
this case.
(2)
Vargas next argues that West Virginia Mutual’s shift of
defense costs to within Lotshaw’s policy limits is contrary to
representations it made to the Insurance Commissioner in a letter
dated August 23, 2005 (dkt. no. 55-1 at 1). As a result, she urges
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DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
that, under Syl. pt. 2 of Joy Technologies, Inc. v. Liberty Mutual
Insurance Co., 421 S.E.2d 493 (W. Va. 1992), the Court should
conclude
that
subsequent
West
Virginia
administration
of
Mutual’s
failure
Lotshaw’s
tail
to
conform
policy
to
its
those
representations violated West Virginia public policy.
Vargas challenges West Virginia Mutual’s alleged failure to
comply
with
the
following
representation
to
the
Insurance
Commissioner:
Once the total premium has been paid, the supplementary
payments revert to being outside the limit of liability.
This change will assure that the Mutual is not
compromised because the premium collected will be
adequate for the coverage provided.
(Dkt. No. 55-1 at 1). She maintains that:
[T]he promised temporary nature of the penalty, and the
opportunity to fully restore coverage, was never shared with
the insured and, indeed coverage was unequivocally and
permanently reduced, contrary to what was represented to the
Commissioner.
(Dkt. No. 54 at 7).
There simply is no evidentiary support for any contention that
West Virginia Mutual failed to inform Lotshaw he could cure his
default, or that it violated its representations to the West
Virginia Insurance Commissioner. In point of fact, the record is
clear that West Virginia Mutual repeatedly notified Lotshaw of his
opportunity to cure his default. Even before Lotshaw purchased tail
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DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
insurance coverage, he had notice from West Virginia Mutual that it
could shift any defense costs to within his liability limits should
he fail to pay the balance of his premium following default on a
quarterly installment payment. Lotshaw also received such notice in
an amendatory endorsement to his medical malpractice policy that
West Virginia Mutual issued on November 1, 2006 (dkt. no. 3-1 at 7,
24), and again in the written warning accompanying its quote for
the tail endorsement dated October 23, 2007. (Dkt. No.
55-1 at 6).
After Lotshaw’s default, West Virginia Mutual explained to him
in a letter dated February 10, 2010, that, if he did not pay the
full balance of his tail insurance premium by March 17, 2010, it
would reduce his liability limit and a “default in payment will
result
in
all
Supplementary
Payments
including
defense
costs
becoming included within the pro-rated limits of liability.” (Dkt.
No. 55-1 at 12). That letter also referred Lotshaw to the warning
accompanying his tail insurance coverage quote, which had expressly
warned that defense costs would be included within the liability
limit if he failed to pay his total premium after a default on his
quarterly installment payments. (Dkt. No. 55-1 at 6). Based on
these notices, there can be no dispute about whether Lotshaw was
notified by West Virginia Mutual that temporary penalties for
failing to pay a quarterly installment would become permanent
18
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
should he default on the premium balance remaining on his tail
policy.
Vargas’s reliance on Syl. pt. 2 of Joy Technologies, Inc., 421
S.E.2d at 493, is misplaced. There the West Virginia Supreme Court
of Appeals reversed a circuit court’s grant of summary judgment for
a defendant-insurer based on its conclusion that West Virginia law,
not Pennsylvania law, applied to the construction of a disputed
pollution exclusion. This was because Pennsylvania law would compel
a result that expressly contradicted testimony given by insurance
company officials to the West Virginia Insurance Commissioner, as
well as the Commissioner’s own understanding of the insurer’s
representations as set forth in the Commissioner’s affidavit. The
Supreme Court of Appeals declined to apply Pennsylvania law and
construed
the
exclusion
consistent
with
the
insurer’s
representations to the Commissioner. Id. at 498-99.
Notably, Joy Technologies, Inc. has only been applied in cases
involving
choice
of
law
issues
or
questions
about
the
interpretation of the particular policy exclusion at issue in the
case. See Nadler v. Liberty Mut. Fire Ins. Co., 424 S.E.2d 256, 265
(W. Va. 1992) (recognizing that “[i]n Joy Technologies, public
policy played a part in our rejection of Pennsylvania law as
controlling the meaning of an exclusionary clause in a commercial
19
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
liability
policy
issued
in
Pennsylvania
to
a
Pennsylvania
corporation”); and United Nuclear Corp. v. Allstate Ins. Co., 285
P.3d 644, 655 (N.M. 2012) (citing Joy Techs. Inc. to illustrate the
drafting history of the disputed “occurrence clause”).
Even if a plausible argument could be made that the issues
here are on all fours with those in Joy Technologies, Inc., the
factual
record
establishes
that
West
Virginia
Mutual’s
administration of the tail endorsement did not conflict with its
representations to the Commissioner. In August 2005, West Virginia
Mutual informed the Insurance Commissioner that, once an insured in
default paid the total premium due, defense costs would return to
outside the policy’s liability limit.
Here, despite the fact that he was given notice and five weeks
to cure his default, Lotshaw never paid the total premium due.
Thus, it was his inaction, not any action by West Virginia Mutual,
that made his default penalties permanent. Had he paid the total
premium due, the shift of defense costs to within his tail policy’s
liability limit would have been temporary, exactly as West Virginia
Mutual had represented to the Commission on August 23, 2005. See
(Dkt. No. 55-1 at 1) (“The change that we request places the
coverage for defense within the limit of liability until such time
as the premium is paid in full.”). Because West Virginia Mutual did
20
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
not contravene its representations to the Insurance Commissioner,
Vargas’s argument to the contrary fails.
(3)
Vargas’s next argument, that West Virginia Mutual “annulled”
a portion of Lotshaw’s tail insurance coverage when it reduced the
applicable policy limit, also fails. West Virginia Code § 33-6-21,
Annulment of Liability Policies, provides:
No insurance policy insuring against loss or damage through
legal liability for the bodily injury or death by accident of
any individual, or for damage to the property of any person,
shall be retroactively annulled by any agreement between the
insurer and the insured after the occurrence of any such
injury, death, or damage for which the insured may be liable,
and any such attempted annulment shall be void.
Chapter 33 does not define the term “annul.” Black’s Law
Dictionary defines “annul” as “to reduce to nothing.” Black’s Law
Dictionary
(6th
ed.
1991).
Webster’s
Third
New
International
Dictionary agrees: to annul is “to reduce to nothing.” According to
Webster’s, to reduce is “to diminish in size, amount, extent, or
number.” Id. (definition 1(b)). Thus, while “annul” and “reduce”
represent related concepts, they are not synonymous. In this case,
West
Virginia
Mutual
reduced
Lotshaw’s
liability
limit
from
$1,000,000 to $750,005. By definition, such a reduction is not an
21
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
annulment, and, by its plain terms, § 33-6-21 does not apply in
this case.
Nor does Vargas offer any compelling statutory, regulatory, or
policy
reason
Lotshaw’s
Virginia
why
this
liability
requires
determination
of
Court
limit
as
providers
partial
should
an
of
limits
treat
annulment.
tail
in
the
By
insurance
the
event
reduction
statute,
to
of
of
West
“plan
for
default
on
amortized payment.” W. Va. Code § 33-20D-3. (emphasis added).
Clearly, the legislature anticipated that reductions in tail policy
limits would occur in the event an insured failed to pay the total
premium due. Significantly, the legislature added language about
partial limits to the statute in 2002, well after § 33-6-21 was
first enacted in 1957. See 1957 W. Va. Acts 338. Thus, application
of § 33-6-21 under the facts here would contravene the legislative
intent evinced in § 33-20D-3.
More broadly, the Supreme Court of Appeals of West Virginia
has never concluded that, for the purpose of § 33-6-21, West
Virginia public policy demands that a reduction be treated as an
annulment. In one of only two cases construing that statute, the
court observed, albeit in a footnote, that an insurance provider
may have violated the statute where it agreed with a potential
22
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
insured to waive all coverage. Farmers Mut. Ins. Co. v. Tucker, 576
S.E.2d 261, 264 n.4 (W. Va. 2002). No waiver of all coverage
occurred here, and no basis exists to argue that § 33-6-21 applies
to the instant facts.
(4)
Vargas next contends that, under Gibson v. Northfield Ins.
Co., 631 S.E. 2d 598 (W. Va. 2005); and Cunningham v. Hill, 698
S.E.2d 944 (W. Va. 2010), a shift of defense costs to within
liability
limits
contravenes
West
Virginia
public
policy.
Cunningham voided certain provisions in two underinsured motorists’
policies, after finding that they directly conflicted with W. Va.
Code § 33-6-31(b). Cunningham, 698 S.E.2d at 950. Gibson held that
a
defense
within
limits
provision
in
a
municipal
ambulance
service’s liability policy violated W. Va. Code § 16-4C-16, which
requires ambulance services to maintain $1,000,000 in liability
coverage, and W. Va. Code § 3-6-31(a). Gibson, 631 S.E.2d at 604
n.8, 606.
Vargas contends that the holdings in these cases dictate a
finding that defense within limits provisions in tail endorsements
violate West Virginia’s public policy. Unlike the policies under
review in Gibson and Cunningham, however, no specific statute is
23
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
violated by the defense within limits provision of West Virginia
Mutual’s tail endorsement. Despite this, Vargas contends that the
defense within limits provision in Lotshaw’s tail endorsement
violates the overarching public policy of West Virginia’s medical
malpractice “system,” as exemplified by W. Va. Code § 55-7B-8(d),
which conditions a cap on non-economic damages upon maintenance of
$1,000,000 of medical liability insurance.5
The particular features of West Virginia’s tail insurance
statutory scheme at issue in this case do not support the extension
of Gibson and Cunningham urged by Vargas. First, this case does not
involve an activity for which West Virginia’s legislature has set
a minimum amount of liability coverage. The provision relied on by
Vargas is found within Article 7B, Medical Professional Liability,
Chapter 55, Actions, Suits, and Arbitration; Judicial Sale, of the
West
Virginia
Code.
That
statute
applies
only
to
medical
professional liability insurance. Lotshaw’s tail endorsement, by
contrast, is mandated and controlled by a separate chapter, within
a separate article, of the West Virginia Code. See W. Va. Code
5
Vargas also argues that Monongalia General Hospital,
where Lotshaw operated on Vargas, required Lotshaw to maintain
$1,000,000 in liability insurance, exclusive of defense costs. The
internal policies of Monongalia General Hospital, however, are not
law and cannot determine the outcome here.
24
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
§ 33-20D-1 et seq. Moreover, § 55-7B-8(d) does not require medical
professionals to maintain $1,000,000 of liability coverage; rather,
it conditions the benefit of capped non-economic damages on their
maintenance of $1,000,000 of liability coverage.
Even if the Court were to read § 55-7B-8(d) as a de facto
requirement
that
professional
liability
automatically
apply
physicians
to
carry
$1,000,000
coverage,
such
Lotshaw’s
tail
a
in
mandate
medical
would
not
When
West
endorsement.
Virginia’s legislature enacted the tail insurance statutory scheme
in 1991, see 1991 W. Va. Acts 983, it did not include a statement
of legislative purpose. Later, however, when it enacted a related
statute in 2003 that instituted tax credits for tail insurance
premiums,
the
legislature
stated
that
the
statute’s
specific
purpose was “the promotion of stable and affordable . . . medical
malpractice liability tail insurance premium rates [to] induce
retention
of
physicians
practicing
effectively decrease the cost of
in
the
state
.
.
.
and
medical malpractice liability
insurance premiums and medical malpractice liability tail insurance
premiums.” 2003 W. Va. Acts 1377, codified at W. Va. Code § 11-13T1.
25
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
This statement of legislative purpose underscores that, at
least as it relates to tail endorsements, the strong public policy
of West Virginia is to promote affordable, accessible tail coverage
that balances the interests of both patients and physicians. To
adopt Vargas’s argument and foreclose carriers of tail insurance
from including defense costs within the available liability limits
upon an insured’s default, would, by judicial dictate, increase the
cost of tail insurance in West Virginia and run afoul of the
legislature’s stated goal of promoting stable and affordable tail
insurance premiums. This the Court declines to do. The defense
within limits provision in West Virginia Mutual’s tail policy
therefore does not violate the public policy of West Virginia.
(5)
Vargas argues that, under Zaleski v. West Virginia Physicians’
Mutual Insurance Co., 647 S.E.2d 747 (W. Va. 2007), West Virginia
Mutual denied Lotshaw due process when it reduced his liability
limits without a hearing. This argument is equally unpersuasive.
Zaleski, which
benefit
of
held that “[p]hysicians who have been afforded the
medical
liability
insurance
coverage
through
West
Virginia Physicians’ Mutual Insurance Company are entitled to due
process protection in seeking review of any non-renewal decision
26
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
made
by
the
company,”
id.
at
Syl.
pt.
6,
is
factually
distinguishable from the case at bar. First, the policy at issue
here involves tail insurance, not medical malpractice insurance.
Moreover,
as
already
discussed,
the
reduction
of
Lotshaw’s
liability limit resulted from his failure to cure his default, not
a decision by West Virginia Mutual not to renew his coverage.
Moreover, in the years since it decided Zaleski, the West Virginia
Supreme Court of Appeals has never cited the case, nor has it ever
indicated an inclination to extend coverage to facts such as those
here.
Even assuming the applicability of Zaleski to the instant
facts, the reduction of the liability limit of Lotshaw’s tail
endorsement does not fail for lack of notice. As already discussed,
in its quotation for tail insurance, as well as in the policy
itself, West Virginia Mutual unambiguously notified Lotshaw about
the penalties he would incur upon default. He therefore had notice
that, if he defaulted on his quarterly installment payments and
then failed to pay the outstanding premium balance, he would be
subject to certain penalties. When Lotshaw did default, he incurred
the penalties about which he had notice. Thus, unlike the facts in
Zaleski, the reduction of the liability limit of Lotshaw’s tail
27
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
policy was totally foreseeable to him and well within his power to
prevent.
(6)
(a)
Vargas’s next argument – that West Virginia Mutual is estopped
from reducing the liability limit of Lotshaw’s tail insurance
policy – is also unavailing. Relying on Potesta v. United States
Fidelity & Guaranty Co., 504 S.E.2d 135 (W. Va. 1998), she contends
that
because
West
Virginia
Mutual
defended
Lotshaw
in
the
underlying action, it is estopped from asserting a coverage-based
defense to payment absent a reservation of rights. Additionally,
she claims that she detrimentally relied on representations made by
Lotshaw’s attorney as to his client’s tail policy limits, and that
West Virginia Mutual acted in bad faith by failing to issue a
reservation of rights to Lotshaw.
In Potesta, the Supreme Court of Appeals held that:
[I]n order to rely on the doctrine of estoppel to prevent
an insurer, who has previously stated one or more reasons
for denying coverage, from asserting other, previously
unarticulated reasons for denying coverage, the insured
must prove that s/he was induced to act or to refrain
from acting to her/his detriment because of her/his
reasonable reliance on the previously stated grounds for
declination.
28
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
Id. at 317. Thus, in order to raise estoppel in the context of an
insurance contract one must first be an insured, and also must have
reasonably relied upon a representation of the insurer.
Vargas can establish neither. Here, it is Lotshaw – not Vargas
– who is West Virginia Mutual’s insured. Vargas offers no authority
suggesting that, as a non-insured, she may estop an insurer from
denying coverage to its insured under the terms of its policy. Nor
does she offer any evidence that she stands in Lotshaw’s shoes for
coverage purposes.
See (Dkt. Nos. 26; 35) (stipulating that
neither West Virginia Mutual nor Vargas would pursue Lotshaw for
amounts over and above the tail policy’s liability limits, and
dismissing Lotshaw from the suit, without assigning Lotshaw’s
rights under the policy to Vargas). Cf. Marlin v. Wetzel Co. Bd. of
Ed.,
569
S.E.2d
462,
469,
472-73
(W.
Va.
2002)
(holder
of
certificate of insurance stood in shoes of insured, and could
therefore
estop
the
insurer
from
denying
coverage
when
the
certificate holder reasonably relied to his detriment upon a
misrepresentations in the certificate).
Vargas also cannot establish that she reasonably relied on any
representations of West Virginia Mutual regarding the amount of
coverage available under Lotshaw’s tail policy. On August 27, 2010,
Vargas’s attorney learned from defense counsel that Lotshaw’s tail
29
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
policy limits would not be $1,000,000, as initially disclosed, but
rather $750,005. He also learned that amount was subject to further
reduction based on the inclusion of Lotshaw’s defense costs. (Dkt.
No. 8-4). Vargas now argues that she had reasonably relied on an
earlier e-mail from defense counsel stating the limits of Lotshaw’s
tail policy were $1,000,000, and she did not settle early in order
to take advantage of the full liability limits under the policy.
There are several reasons why this argument is unpersuasive.
First, although he may have been paid by West Virginia Mutual, the
attorney representing Lotshaw in Vargas’s malpractice action was
not an agent of West Virginia Mutual under West Virginia law. See
Jackson v. State Farm Mut. Auto. Ins. Co., 600 S.E.2d 346, 359 (W.
Va. 2004) (“Therefore, generally the lawyer for the insured . . .
is not an agent of the insurer so that his or her conduct may be
imputed to the insurer.”); Barefield v. DPIC Cos., Inc., 600 S.E.2d
256, 268 (W. Va. 2004) (citing Rules of Professional Conduct 1.7,
1.8(f), and 5.4(c) to support conclusion that a defense attorney
hired by insurance company to represent insured does not represent
insurer); State ex rel. Allstate Ins. Co. v. Gaughan, 508 S.E.2d
75, 89 (W. Va. 1998) (“the insurer actually hires the attorney to
represent the insured”). Thus, any statement made by that attorney
30
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
cannot be attributed to West Virginia Mutual and is not binding
upon it.
More fundamentally, however, it is clear that Vargas had
constructive notice about the fact that Lotshaw’s tail policy
limits were subject to reduction in the event he defaulted on his
premium payments. From the time she filed suit in 2009, Vargas and
her attorney knew Lotshaw had canceled his medical professional
liability policy with West Virginia Mutual in 2007 and purchased a
tail endorsement. Pursuant to that endorsement’s unambiguous terms,
and as contemplated by West Virginia Code § 33-20D-3(c), the
available liability limit was subject to reduction in the event
Lotshaw defaulted on a quarterly installment payment.
(b)
To the extent Vargas argues that the Court may apply Potesta
to expand Lotshaw’s tail policy coverage beyond its terms, that
argument fails as a matter of law. “Generally, the principle[] of
. . . estoppel [is] inoperable to extend insurance coverage beyond
the terms of an insurance contract.” Syl. pt. 5, Potesta, 504
S.E.2d at 137. Potesta provides three exceptions to that general
rule, including where an insured has been prejudiced because:
(1) an insurer’s, or its agent’s, misrepresentation made
at the policy’s inception resulted in the insured being
prohibited from procuring the coverage s/he desired; (2)
31
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
an insurer has represented the insured without a
reservation of rights; and (3) the insurer has acted in
bad faith.
Id. at syl. pt. 7. These exceptions are inapplicable to Vargas
since, as noted earlier, she is not West Virginia Mutual’s insured
and has offered no reason why she should be treated as such.
Furthermore,
disregard
the
this
clear
Court
focus
declines
of
Vargas’s
Potesta’s
first
invitation
to
exception
on
misrepresentations made at the policy’s inception. Cf. Westfield
Ins. Co. v. Paugh, 390 F. Supp. 2d 511, 530 (N.D.W. Va. 2005)
(“[T]he focus of an inquiry into coverage by estoppel is . . . on
the misrepresentations that were made by the insurer or its agent
‘at the policy’s inception’”).
Only Lotshaw, the insured, may claim a right of estoppel under
Potesta. To allow Vargas to do so would, in essence, permit her to
mount a third-party bad faith claim against West Virginia Mutual,
which she clearly may not do. See W. Va. Code § 33-11-4a; Syl. pt.,
Elmore v. State Farm Mut. Auto. Ins. Co., 504 S.E.2d 893 (W. Va.
1998).
(7)
Alternatively, Vargas urges the Court to reform the tail
policy
to
restrict
any
reduction
of
the
policy’s
original
$1,000,000 liability limit to the amount of Lotshaw’s default
32
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
rather than proportionally as the policy provides. “[R]eformation
is appropriate only where there is a mutual mistake. . . . Also,
reformation
is
appropriate
only
if
the
written
agreement
or
insurance policy does not conform to the clear unwritten agreement
between the parties.” Ohio Farmers Ins. Co. v. Video Bank, Inc.,
488 S.E.2d 39, 44 (W. Va. 1997). Accident or fraud may provide
additional grounds for reformation. Id. at 43.
There is no evidence that Lotshaw’s tail policy was the
product of mutual mistake, fraud, or accident, or that it fails to
conform to some clear, unwritten agreement between Lotshaw and West
Virginia Mutual. On the contrary, the policy unambiguously states
that, if the insured fails to make a quarterly premium payment, the
entire balance becomes due. Moreover, it is clear under the policy
that, if the insured fails to pay the remaining premium balance,
the “limit of liability applicable to the extended reporting period
will be reduced pro-rata to an amount equal to the limit of
liability that would have been provided based on the amount of
additional premium paid.” (Dkt. No. 55-1 at 10).
Before Lotshaw purchased the tail policy, West Virginia Mutual
warned him about these penalties. (Dkt. Nos. 55-1 at 6, 3-1 at 24).
Consequently, no evidence supports a contention that the tail
policy he purchased was the product of mutual mistake, fraud, or
33
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
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MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
accident, or that it somehow fails to conform to an unwritten
agreement of the parties. Therefore, there is no justification to
reform the contract.
IV.
There remains one final issue. Because Lotshaw elected to pay
his premium in quarterly installments over three years, Vargas
points out that a portion of Lotshaw’s quarterly payment was a
finance charge assessed by West Virginia Mutual. All told, Lotshaw
would
have
paid
$118,554.07
for
the
$1,000,000
in
liability
coverage had he completed his scheduled payments. (Dkt. No. 54 at
13 n.35). At the time of his default in 2009, he actually had paid
$77,585 of the premium due. (Dkt. No. 60 at 4).
Vargas contends that West Virginia Mutual’s calculation of the
tail policy’s reduced liability limit fails to account for the fact
that Lotshaw no longer owes any finance charges. In reply, West
Virginia Mutual suggests that, to the extent it miscalculated the
pro-rata reduction, the liability limits under the policy may be
subject to slight modification. (Dkt. No. 60 at 2).
Regardless of the finance charges Lotshaw no longer owes to
West Virginia Mutual, it is clear that Lotshaw had paid $77,585 of
the $103,406 tail insurance premium at the time of his default, or
75.03 percent of the total premium due. Per the policy, the
34
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
available liability limit under the policy is to be reduced pro
rata to reflect the amount of the premium actually paid. In other
words, the liability limit available after Lotshaw’s default was
75.03 percent of the original policy limit, or $750,300. Again, per
the policy, the liability limit after default is to be further
reduced by the cost of Lotshaw’s defense, which was $62,769.21.
(Dkt. No. 55-1 at 9). Therefore, the available liability limit
under Lotshaw’s tail coverage is $687,530.79, which is $295 more
than the liability limit posited by West Virginia Mutual. See (dkt.
no. 60 at 2) (West Virginia Mutual’s concession that, to the extent
it miscalculated the pro-rata reduction, the liability limits may
be subject to slight modification).
V. CONCLUSION
For the reasons discussed, the Court GRANTS West Virginia
Mutual’s motion for summary judgment (dkt. no. 55), DENIES Vargas’s
motion for
summary
judgment
(dkt.
no.
53),
and
DECLARES
the
available liability limits under West Virginia Mutual’s tail policy
to satisfy the claims in the case of The West Virginia Mutual
Insurance Company vs. Ana Cortes Vargas, Civil Action No. 11-CV-32
to be $687,530.79.
35
THE WEST VIRGINIA MUTUAL INS. CO. V. VARGAS
1:11CV32
MEMORANDUM OPINION AND ORDER GRANTING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
Pursuant to Fed. R. Civ. P. 58, the Court directs the Clerk of
Court to enter a separate judgment order and to transmit copies of
both orders to counsel of record.
It is so ORDERED.
DATED: March 20, 2013
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
36
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