Negri et al v. Nationwide Mutual Insurance Company et al

Filing 41

MEMORANDUM OPINION and ORDER: Denying Without Prejudice as premature 16 Motion for Summary Judgment; and Denying With Prejudice 18 Motion for Summary Judgment due to Non-Assignability Clause. Signed by Senior Judge Frederick P. Stamp, Jr on 10/24/11. (soa)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
ALLEN R. NEGRI, by assignment
from Paul D. Dotson, Jr.,
LORRAINE NEGRI, by assignment
from Paul D. Dotson, Jr. and
PAUL D. DOTSON, JR., individually,
Plaintiffs,
v.

Civil Action No. 5:11CV3
(STAMP)

NATIONWIDE MUTUAL INSURANCE COMPANY,
and NANCY L. KOWALSKI INSURANCE
AND FINANCIAL SERVICES,
Defendants.
MEMORANDUM OPINION AND ORDER
DENYING DEFENDANT NATIONWIDE MUTUAL
INSURANCE COMPANY’S FIRST MOTION FOR SUMMARY JUDGMENT
AND DENYING DEFENDANT’S SECOND MOTION FOR
SUMMARY JUDGMENT DUE TO NON-ASSIGNABILITY CLAUSE
I.

Procedural History

The plaintiffs filed this civil action in the Circuit Court of
Hancock County, West Virginia against the above-named defendants
alleging violations of the West Virginia Unfair Trade Practices Act
(“UTPA”), statutory and common law bad faith, breach of contract,
breach of fiduciary duty, tort of outrage, negligence, and civil
conspiracy.

The defendants then filed a notice of removal in this

Court based upon diversity jurisdiction.

The defendants filed a

motion to dismiss all claims against defendant Nancy L. Kowalski
Insurance and Financial Services (“Kowalski Insurance”) and to
dismiss the civil conspiracy claim against defendant Nationwide

Mutual Insurance Company (“Nationwide”), both of which this Court
granted.

The only remaining defendant, Nationwide, also filed two

motions for summary judgment.

The first motion argues that this

action must be dismissed because Nationwide validly cancelled the
auto policy of its insured (Mr. Dotson), the tortfeasor in this
case, prior to the accident that is the subject of the claims made
of this action.
upon

The second motion for summary judgment is based

Nationwide’s

argument

that

a

non-assignability

clause

contained in Mr. Dotson’s policy precludes him from assigning the
claims asserted in this litigation, thus precluding the Negris from
recovering under rights obtained pursuant to the assignment they
received from Mr. Dotson.
Both of these motions have been fully briefed by the parties
and are ripe for disposition.

Following review of both parties’

contentions and the relevant law, for the reasons herein, this
Court finds that the defendant’s first motion for summary judgment
based upon the cancellation of Mr. Dotson’s policy, is premature
and must be denied.

Further, finding that, as a matter of law, the

non-assignability clause in Mr. Dotson’s policy is unenforceable in
this context, the defendant’s second motion for summary judgment
relating to the non-assignability clause must also be denied.
II.

Facts

On February 26, 2010, plaintiff Paul D. Dotson, Jr. was
driving a van which struck a sport utility vehicle head-on (“the

2

accident”).

Allen Negri was a front seat passenger in the sport

utility vehicle.

Allen Negri allegedly sustained a broken femur,

concussion, low grade coma, broken nose, broken ribs, bruised
shoulder, injured hips, and multiple bruises, cuts and scrapes.
The Negris made a claim for insurance benefits pursuant to Dotson’s
insurance policy issued by Nationwide.

Nationwide notified the

Negris that no insurance coverage was available because Dotson’s
policy had been cancelled prior to the collision. Dotson states he
was unaware that his policy had been cancelled and states that he
was not notified by Nationwide of the cancellation.

On June 25,

2010, the Negris filed suit against Dotson in the Circuit Court of
Brooke County, West Virginia. Nationwide refused to provide Dotson
with a defense, and Dotson allowed default to be entered against
him.

The Court then awarded damages against Dotson in the amount

of $6,389,320.69 plus interest and costs.

On September 27, 2010,

the Court entered the final judgment order.

After the final

judgment order, Dotson assigned his first party rights and a
portion of his right to any first party damages to Allen and
Lorraine Negri.
III.

Applicable Law

Rule 56 of the Federal Rules of Civil Procedure provides that
“[a] party may move for summary judgment, identifying each claim or
defense -- or part of each claim or defense -- on which summary
judgment is sought” and that such a motion should be granted “if

3

the movant shows that there is no genuine dispute as to any
material fact and that the movant is entitled to judgment as a
matter of law.”

Fed. R. Civ. P. 56(a).

Under Federal Rule of Civil Procedure 56(c),
A party asserting that a fact cannot be or is genuinely
disputed must support the assertion by:
(A) citing to particular parts of materials
in
the
record,
including
depositions,
documents, electronically stored information,
affidavits or declarations, stipulations . . .
admissions, interrogatory answers, or other
materials; or
(B) showing that the materials cited do not
establish the absence or presence of a genuine
dispute, or that an adverse party cannot
produce admissible evidence to support the
fact.
Fed. R. Civ. P. 56(c).

The party seeking summary judgment bears

the initial burden of showing the absence of any genuine issues of
material fact.

See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23

(1986). After this initial burden is satisfied, “[t]he burden then
shifts to the nonmoving party to come forward with facts sufficient
to create a triable issue of fact.”

Temkin v. Frederick County

Comm’rs, 945 F.2d 716, 718 (4th Cir. 1991), cert. denied, 502 U.S.
1095 (1992)(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
247-48 (1986)).
“The inquiry performed is the threshold inquiry of determining
whether there is the need for a trial -- whether, in other words,
there are any genuine factual issues that properly can be resolved
only by a finder of fact because they may reasonably be resolved in
4

favor of either party.”

Id. at 250; see also Charbonnages de

France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979) (Summary
judgment “should be granted only in those cases where it is
perfectly clear that no issue of fact is involved and inquiry into
the facts is not desirable to clarify the application of the law.”
(citing Stevens v. Howard D. Johnson Co., 181 F.2d 390, 394 (4th
Cir. 1950))).
In Celotex, the Court stated that “the plain language of Rule
56(c) mandates the entry of summary judgment, after adequate time
for discovery and upon motion, against a party who fails to make a
showing

sufficient

to

establish

the

existence

of

an

element

essential to that party’s case, and on which that party will bear
Celotex, 477 U.S. at 322.

the burden of proof at trial.”

In

reviewing the supported underlying facts, all inferences must be
viewed in the light most favorable to the party opposing the
motion. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986).
Rule 56(b) also provides that summary judgment may be filed
“at any time until 30 days after the close of all discovery.”
Notwithstanding,

courts

have

found

that

summary

judgment

is

generally not appropriate until after the non-moving party has had
sufficient opportunity for discovery.

See Oksanen v. Page Mem’l

Hosp., 912 F.2d 73, 78 (4th Cir. 1990), cert. denied, 502 U.S. 1074
(1992).

Whenever “the nonmoving party has not had the opportunity

5

to discover information that is essential to his opposition,”
summary judgment should be denied.

Anderson, 477 U.S. at 250.

Rule 56(d) provides that, in such a situation, when facts essential
to justify a nonmovant’s position cannot be presented, a nonmovant
may show the reason “by affidavit or declaration,” and the Court
may “(1) defer considering the motion or deny it; (2) allow time to
obtain affidavits or declarations or take discovery; or (3) issue
any

other

appropriate

order.”

In

reviewing

the

supported

underlying facts, all inferences must be viewed in the light most
favorable to the party opposing the motion.

See Matsushita Elec.

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
IV.
A.

Discussion

First Motion for Summary Judgment
In its first motion for summary judgment, Nationwide calls for

summary judgment based upon the argument that no insurance coverage
existed

for

Mr.

Dotson

at

the

time

of

the

accident

because

Nationwide had cancelled his policy due to non-payment effective
January 12, 2010, about a month prior to the accident.

It argues

that, under the language of the Mr. Dotson’s insurance contract, as
well as the law of West Virginia, it validly cancelled Mr. Dotson’s
policy prior to the accident, so the contractual relationship
between Nationwide and Mr. Dotson that is the predicate for this
action did not exist.

6

The plaintiffs argue that discovery is necessary in order to
ascertain further evidence regarding Nationwide’s argument.

They

maintain, and attach an affidavit averring the same, that Mr.
Dotson believed that he had brought his policy current when he
added his son’s car to his insurance policy on December 2, 2009,
two days before Nationwide allegedly sent the cancellation notice.
They argue that discovery is necessary to determine whether this is
true.

Additionally, they claim that discovery may reveal that the

Dotson’s insurance agent was negligent in bookkeeping, and thus
possibly failed to report that Mr. Dotson had brought his account
current on December 2, 2009.
Further, the plaintiffs argue that discovery is necessary to
determine whether past dealings between Mr. Dotson and Nationwide
were such that a pattern and practice of “doing business” may have
been established as to lead Mr. Dotson to detrimentally rely upon
a reasonable understanding that he was permitted to allow his
policy to fall behind for several months then bring it current with
a lump-sum payment.

The plaintiffs also attach an affidavit of

plaintiffs’ counsel, pursuant to Federal Rule of Civil Procedure
56(d), explaining that insufficient information has been exchanged
for the plaintiffs to adequately support their opposition to the
motion for summary judgment, because discovery had only just begun
when the motion for summary judgment was filed.

7

Nationwide

counters

the

plaintiffs’

request

for

further

discovery by arguing that the plaintiffs’ opposition to its motion
lack

support.

cancellation

It

also

reiterates

notice

sent

to

Mr.

its

Dotson

position
and

the

that

the

subsequent

cancellation of the policy were procedurally valid.

However,

whether or not the process of cancellation and notice given of it
were

legally

sound,

if

the

basis

for

the

cancellation

was

fallacious, procedural validity is a moot issue.
On

this

point,

Nationwide’s

counter-arguments

to

the

plaintiffs’ request for further discovery in order to discern
whether Mr. Dotson actually brought his account current prior to
the cancellation, are unconvincing at this juncture, and actually
support the plaintiffs’ contentions.

Nationwide again summarizes

its payment records of Mr. Dotson’s policy, showing no payment on
December 2, 2009, and argues that plaintiffs’ position that Mr.
Dotson may have paid his premium on December 2 is inconsistent and
without merit because the plaintiffs say that Dotson “likely” made
the payment, while also making arguments that Mr. Dotson had a
“reasonable expectation” that he would be able to pay his premiums
later.
However, the plaintiffs’ use of broad, unspecific language, as
well as plaintiffs’ failure to make a specific assertion that a
payment was made, is directly illustrative of the fact that the
plaintiffs have not had an opportunity to engage in discovery on

8

this matter.

The plaintiffs attached an affidavit of Mr. Dotson,

that states that he remembers paying his new premium on December 2,
2009.

They also make the logical argument that it is more

believable that Nationwide would only allow Mr. Dotson to add a car
to his policy if he brought his account current.

Beyond this, the

plaintiffs have no further evidence of the payment, because such
evidence would be obtained or revealed as nonexistent during
discovery.

Thus, the plaintiffs’ lack of support for their

contention that Mr. Dotson paid his premium is, in fact, support
for their argument that this motion cannot be ruled upon until a
time following the completion of discovery.
Further, the defendant’s multiple offerings of its payment
records for Mr. Dotson’s account do not prove that no payment was
made.

The plaintiffs make the argument that they believe that

discovery will reveal that Mr. Dotson’s Nationwide agent, a former
defendant in this case, Kowalski Insurance, kept poor records, and
thus

record

of

payment

may

have

never

been

Nationwide to be reported on its payment records.

transmitted

to

If Mr. Dotson

did indeed bring his account current at the office of Kowalski
Insurance on December 2, 2009 and notice of the same was not
transmitted to Nationwide, Nationwide, as principle of its agent
Kowalski Insurance, will be charged to have received payment and
the cancellation will be invalid.
Ins.

Co.,

145

W.

Va.

549,

Moore v. United Benefit Life

563-64

9

(1960)

(Insurer

bound

by

statements and actions of its agent.

Insured “is not called upon

to make examination to ascertain whether the agent of the insurance
company has faithfully discharged his duty.”).

While plaintiffs’

proffered evidence of poor record-keeping is unconnected and not at
this stage persuasive to show that the record-keeping of any
transaction on December 2, 2009 was deficient, it is again, support
for the contention that discovery is necessary.
Finally, Nationwide argues that the plaintiffs’ inconsistent
factual positions that Mr. Dotson paid his premium on December 2,
2009 while at the same time, arguing that the prior dealings with
Nationwide gave Mr. Dotson a reasonable expectation that he was
permitted to allow his policy to fall behind then to bring it
current with a lump-sum payment, are improper under West Virginia
law.

The West Virginia case law cited by Nationwide states that

“successive inconsistent positions . . . in reference to the same
fact or state of facts” may not be maintained.

Syl. pt. 3 Haba v.

Big Arm Bar & Grill, Inc., 196 W. Va. 129, 131 (1996).

However,

the plaintiffs here do not take inconsistent positions in reference
to the same set of facts.

The plaintiffs have not been able to

ascertain the facts, so they have taken two different positions
based upon two separate possible states of the facts that may be
revealed

in

discovery.

The

practice

of

stating

alternative

positions in order to retain all possible arguments before factual
discovery has revealed whether certain positions may be unsupported

10

is a quite common and acceptable practice that is in fact endorsed
by the Federal Rules of Civil Procedure 8(d).
(2) Alternative Statements of a Claim or Defense.
A
party may set out 2 or more statements of a claim or
defense alternatively or hypothetically, either in a
single count or defense or in separate ones. If a party
makes alternative statements, the pleading is sufficient
if an one of them is sufficient.
(3) Inconsistent Claims or Defenses. A party may state
as many separate claims or defenses as it has, regardless
of consistency.
This Court finds that the plaintiffs have satisfactorily shown
that they are unable to support an opposition to the first motion
for summary judgment because they have not been afforded adequate
time to conduct discovery. As such, summary judgment at this stage
would be inappropriate.
F.2d at 78.

See Oksanen v. Page Memorial Hosp., 912

Accordingly, the defendant’s first motion for summary

judgment is denied as premature pursuant to Federal Rule of Civil
Procedure 56(d)(1).
B.

Second Motion for Summary Judgment
Conversely, the second motion for summary judgment involves

purely legal questions which can be determined by this Court at any
time without any factual determinations, and thus may be decided
prior to the conclusion of discovery.

In the second motion,

Nationwide argues that the non-assignability clause contained in
Mr. Dotson’s policy voids the assignment of rights to this cause of
action that has given the Negris standing to bring this case.

As

a result, Nationwide contends, this case should be dismissed as to
11

those

plaintiffs.

In

response,

the

plaintiffs

argue

that

assignments such as these are perfectly valid, and a finding
otherwise would be against public policy.
In Smith v. Buege, 182 W. Va. 204 (1989), the West Virginia
Supreme Court held that, in the context of post-loss assignment of
a fire insurance policy, all otherwise valid assignments will be
valid regardless of the existence of a non-assignability clause
within the policy.

Id. at 211.

The court distinguishes post-loss

assignments from pre-loss assignments, which will not be valid when
a non-assignment clause exists, by rationalizing that:
the recognized reason for the prohibition of assignments
without the consent of the insurer, specifically, to
protect the insurer against an increased risk resulting
from the assignment, is not applicable after a loss
because the liability of the insurer was already fixed by
the loss prior to the effective date of the assignment,
and like any other chose in action such liability is
assignable regardless of the conditions of the policy in
question.
Id.
This holding in Smith was reached in the context of a fire
insurance policy, and the West Virginia Supreme Court has not had
occasion to expressly apply it to the context of automobile
liability

insurance.

Nationwide

contends

that

this

fact

distinguishes the case from the instant action and, had the West
Virginia Supreme Court of Appeals intended to make the Smith rule
applicable to all types of insurance, it would have done so.
However, this argument is not dispositive of a finding that

12

Smith applies in this context, as the court did not have occasion
based upon the facts before it in Smith to make such a sweeping
ruling, and a failure to do so does not necessarily indicate an
opposite

intention.

Further,

Nationwide’s

reliance

on

the

distinction that Smith dealt with fire insurance is puzzling, given
that neither of the cases heavily cited by Nationwide to support
its argument that the clause is enforceable deal with automobile
insurance.

Williams v. Mayflower Ins. Co., 238 Ga. App. 581

(1999), dealt with a homeowner’s policy (functionally, a fire
policy), and Conoco, Inc. v. Republic Insurance Co., 819 F.2d 120
(5th Cir. 1987), dealt with a marine insurance policy.

Still,

Nationwide saw no difficulty in extending the holdings of these
cases to the instant situation.
Further,

the

holding

and

rationale

in

Smith

is

broadly

applicable to all types of insurance, and it seems to this Court to
be highly indicative of the way in which the West Virginia Supreme
Court of Appeals would rule if faced with the opportunity to extend
the Smith rule to this context.

The bases for the court’s holding

are founded in the argument that enforcement of non-assignability
clauses post-loss is “contrary to public policy” because the
rationale of protecting insurance companies from increased risk of
loss is no longer applicable, as the risk is fixed by the loss that
has already occurred.

Id.

Restriction on post-loss assignment is

further described in multiple authorities as being “inconsistent

13

with the covenant of indemnity or the right to assign a claim for
money due,” as well as having support in the idea that “the loss
obviously creates new rights and obligations that . . . alters the
prohibition of the assignment.”

43 Am. Jur. 2d Insurance § 787;

Steven Plitt et al., Couch on Insurance § 35.8 (3d ed. 2005).

This

reasoning is deeply rooted in West Virginia law as well as a the
majority1 of other jurisdictions, and unquestionably applies to
automobile liability insurance.

See Syl. pt. 4 Nease v. [Aetna]

Insurance Co., 32 W. Va. 283 (1889); Stolle v. Aetna Fire & Marine
Insurance Co., 10 W. Va. 546 (1887); Antal’s Restaurant, Inc. v.
Lumbermen’s Mutual Casualty Co., 680 A.2d 1386, 1388-89 (D.C.
1996); Pacific Coast Casualty Co. v. General Bonding & Casualty
Ins. Co., 240 F. 36 (9th Cir. 1917); Missouri State Life Ins. Co.
v. Robertson Banking Co., 223 Ala. 13 (1931).
refers

as

specifically

applicable

Further, Couch

to

the

rule

to

liability

insurance.

Id.

Accordingly, this Court finds that the rule that

post-loss assignments are valid notwithstanding any contrary terms
of the policy, extends to automobile insurance.
The defendant further attempts to distinguish Smith from the
instant case by arguing that the West Virginia Supreme Court of

1

See Steven Plitt et al., Couch on Insurance § 35.8 (3d ed.
2005) (listing Georgia as the only jurisdiction to hold otherwise).
This Court notes that Nationwide’s reliance upon Williams v.
Mayflower Ins. Co., 238 Ga. App. 581 (1999), is misguided because
Georgia statutory law expressly requires enforcement of nonassignability clauses in insurance policies. See Ga. Code Ann.
§ 33-24-17.
14

Appeals

did

clauses

in

not
the

address
context

the
of

enforceability
loss

based

upon

of

non-assignment

personal

injury.

However, while this contention on the part of defendant Nationwide
is true, the demarcation between insurance claims based upon
“personal injury” and claims based upon “property loss” is a false
one in this context.

Claims based upon the personal injury of an

insured are not assignable, because all assignments must be to a
“property right,” but in this case, the assignee is the one with
any claim for personal injury.

See Jennings v. Farmer’s Mut. Ins.

Co., 224 W. Va. 636, 641 (2009).

The right that was assigned was

not one to funds for personal injury, but a right to a legal cause
of action for insurance proceeds based upon liability coverage.
See Steven Plitt et al., Couch on Insurance § 34.2 (3d ed. 2005)
(“As a general proposition, the loss creates a right to payment of
a sum of money.”).

The assignor did not assign any claim for his

own personal injury.

Rather, he assigned his alleged contractual

right to indemnification for the monetary judgment entered against
him by the Circuit Court of Brooke County, West Virginia.

Such an

assignment is a property right and is only tangentially connected
to personal injury.
Finally, Nationwide argues that Smith does not address “bad
faith refusal to provide insurance coverage,” but rather the
assignment of insurance proceeds. This distinction, too is without
merit.

In Smith, the court describes assignable rights after loss

15

quite broadly, endorsing the assignment “of a claim or right of
action on the policy.”

182 W. Va. at 116.

Further, Couch refers

to “a claim arising under the policy” as assignable.
(emphasis added).

§ 35.8

A bad faith claim most certainly arises under

the policy, and Nationwide has argued a similar position in this
very action.

In fact, courts that have found even post-loss

assignment of policy rights to be non-assignable when a nonassignment clause exists, have found that bad faith, or “when an
insurer breaches a duty to an insured, and the assignment is of a
cause of action to recover damages for that breach” to be a
specific exception to non-assignability.

Henkel Corp. v. Hartford

Accident and Indemnity Co., 29 Cal. 4th 934 (2003).
As a final matter, it contravenes common sense to reach a
conclusion that bad faith claims are not assignable in the face of
a non-assignment clause.

Such a finding would, in effect, reward

insurance companies for breaching duties to their insured by
allowing the enforcement of policy provisions that otherwise would
not be enforceable post-loss.

This Court declines to make such a

counterintuitive finding based simply upon the application of the
Smith precedent.
As such, this Court finds that the West Virginia Supreme
Court’s holding in Smith applies to the instant situation, and the
non-assignment clause within Mr. Dotson’s policy is ineffective in
invalidating the otherwise valid assignment which gives the Negris

16

standing to bring this case. Defendant Nationwide’s second motion
for summary judgment is thus denied.
V.

Conclusion

For the reasons stated above, the defendant’s first motion to
for summary judgment (ECF No. 16) is DENIED WITHOUT PREJUDICE as
premature, and the defendant’s second motion for summary judgment
(ECF No. 18) is DENIED WITH PREJUDICE.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein.
DATED:

October 24, 2011

/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE

17