Bible Baptist Church et al v. Brotherhood Mutual Insurance Company et al

Filing 50

MEMORANDUM OPINION AND ORDER pursuant to the plaintiff's 4 MOTION to Remand; directing that the case be remanded to the Circuit Court of Kanawha County, West Virginia; the court withholds entry of final judgment to that effect pending submission of a petition for attorney's fees and costs which is to be filed by 8/20/2018. Signed by Judge John T. Copenhaver, Jr. on 8/1/2018. (cc: counsel of record; any unrepresented parties) (taq)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON

BIBLE BAPTIST CHURCH by
DARRELL BAKER,
HOWARD PREAST, and
MICHAEL V. MINNICK, trustees, and
JAMES WALDECK,
Plaintiffs,

v.

Civil Action no. 2:17-cv-04613

BROTHERHOOD MUTUAL INSURANCE COMPANY,
CHURCH INSURANCE CONSULTANTS, INC., and
STEPHEN PETERS,
Defendants.
MEMORANDUM OPINION AND ORDER

Pending is the plaintiffs’ motion to remand, filed on
January 18, 2018.

Inasmuch as Church Insurance Consultants,

Inc. (“CIC”) is a West Virginia corporation and Stephen Peters
is a West Virginia resident, the plaintiffs, who are also from
West Virginia, contend that the court does not have diversity
jurisdiction under 28 U.S.C. § 1332.
This case was filed in the Circuit Court of Kanawha
County, West Virginia, on September 23, 2017.

Brotherhood

Mutual Insurance Company (“Brotherhood”) removed this action to
this court on December 22, 2017.

Brotherhood objects to remand,

asserting that the two West Virginia defendants were
fraudulently joined to defeat diversity and arguing that there
is no viable claim against CIC and Peters.

As the Fourth

Circuit has explained, “The burden on the defendant claiming
fraudulent joinder is heavy: the defendant must show that the
plaintiff cannot establish a claim against the nondiverse
defendant even after resolving all issues of fact and law in the
plaintiff’s favor.”

Marshall v. Manville Sales Corp., 6 F.3d

229, 232-33 (4th Cir. 1993).

Thus, the court looks to see

whether any viable claims have been asserted against the
nondiverse defendants.

I.

Facts

James Waldeck, a plaintiff, serves as pastor of Bible
Baptist Church, located in Belva, Nicholas County, West
Virginia.

The church operates a boarding school in Clendenin,

Kanawha County, known as Blue Creek Academy.

Through the agency

of CIC and its employee Peters, the church obtained a liability
insurance policy from Brotherhood, first effective June 13,
2011.
In May 2015, a lawsuit was brought in the Circuit
Court of Kanawha County against Bible Baptist Church and others
alleging that A.B., a student at Blue Creek Academy, was
physically and sexually abused at the school.

According to the

allegations of the child’s guardian, Waldeck negligently and
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carelessly failed to protect A.B. from such abuse, and the
church negligently failed to supervise the staff at Blue Creek.
Compl. at ¶ 12.

Later, a second suit was filed on behalf of

another student, K.R.L., which added a negligent hiring claim to
the allegations made on behalf of A.B.

Id. at ¶ 13.

In January 2016, Brotherhood filed in this court Civil
Action No. 2:16-cv-00341, a declaratory judgment action seeking
to establish that its policy did not provide coverage for claims
relating to A.B. and K.R.L.

Id. at ¶ 15.

In its complaint in

that action, Brotherhood asserted that plaintiff Waldeck had
falsely represented that the church “had no other facility than
the church” and that, in particular, it did not operate a
school.

Id. at ¶ 17.
Peters admitted in his deposition in that declaratory

judgment action that Waldeck had never tried to conceal anything
about the school from him, and Peters further acknowledged that
he had received an email from Brotherhood specifically directing
him to meet with Waldeck on March 10, 2011, at Blue Creek
Academy. 1

Id. at ¶ 19.

Peters also testified that he had

visited the school and took photographs and measurements, which
he submitted to Brotherhood.

Id. at ¶ 20.

He obtained

information from Waldeck “to complete an application for both

1

This information is based on the allegations in the complaint in this
action; the court has not consulted the record in the other action to
ascertain these assertions.
3

the Bible Baptist Church and the school and submitted that
information to Brotherhood such that Brotherhood was clearly
aware of the existence of Blue Creek Academy from the time of
the Bible Baptist Church’s initial application.”

Id. at ¶ 21.

Peters admitted that subsequent to the initial application which
included a request for coverage for both the church and the
school, he submitted a second application seeking coverage only
for the church, which application falsely indicated that there
was no school affiliated with the Bible Baptist Church.
¶ 22.

Id. at

Peters also admitted that Waldeck did not request the

submission of the second application, which contained false
information, and that the church and Waldeck never received any
documentation to indicate that the coverage did not include the
school.

Id. at ¶ 23.
Prior to Peters’ deposition, Brotherhood’s counsel

asked him to sign an affidavit, which Brotherhood then attached
with its motion for summary judgment in that case.
24-25.

Id. at ¶¶

According to the plaintiffs, the affidavit falsely

represented that Waldeck had declined the quote for coverage for
the entire property on account of the amount of premium and
instead opted for coverage for the church only.

Id. at ¶ 24.

During his deposition, Peters acknowledged that his affidavit
had been composed by Brotherhood’s counsel and that he had not
reviewed the documents it referenced.

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Id. at ¶ 26.

In his

deposition, Peters testified under oath that “I no longer want
to stand by my Affidavit any longer.”

Id. at ¶ 27.

By memorandum opinion and order entered by Judge
Thomas E. Johnston in that case on December 7, 2017, judgment
was entered for defendants, declaring Brotherhood’s obligation
under its insurance policy to cover the occurrences designated
in the order, which resulted in $2 million in coverage for the
claims of A.B. and K.R.L.

Contrary to its complaint in that

case, Brotherhood has acknowledged that its policy does provide
liability coverage for the claims asserted against the Bible
Baptist Church and plaintiff Waldeck for A.B. and K.R.L.
¶ 28.

Id. at

Fifteen days after the adverse judgment in its

declaratory judgment action, Brotherhood removed this action on
December 22, 2017.

II.

Claims against the Nondiverse Defendants in this Action
Plaintiffs bring a claim of negligence in procuring

coverage against CIC and Peters (Count I), breach of contract
against CIC (Count II), breach of fiduciary duty against both
(Count III), and fraud against both (Count VIII).
is joined, inter alia, in the fraud count.

Brotherhood

Plaintiffs demand

compensatory damages, damages “in connection with. . .
embarrassment, humiliation, annoyance and inconvenience,” net
economic losses, punitive damages and attorney’s fees.
87.
5

Id. at ¶

The action must be remanded to state court if any of
those grounds for relief against CIC or Peters is viable, in
which event CIC and Peters could not be deemed to have been
joined fraudulently, thereby destroying diversity.

III. Analysis
While Brotherhood maintains that pleading both
negligence and fraud is inconsistent insofar as they require
different mental states, plaintiffs counter that the defendants
might have committed the torts at different times in different
mental states, Rep. at 5-6, an argument that the court finds
persuasive at this stage.
Brotherhood asserts that the claim for negligent
failure to procure insurance coverage must fail for lack of
damages, inasmuch as Brotherhood has already admitted coverage
under its policy.

Resp. at 10.

Furthermore, focusing only on

the negligence claim and ignoring the fraud claim and the
prospect of punitive damages and attorneys’ fees, Brotherhood
argues that the measure of damages in a failure to procure
action is the amount that would have been due under the policy
if it had been obtained.

Id. at 11.

Because Brotherhood has

accepted coverage, it says there is no difference between the
policy limit and the amount of coverage available, and it
asserts that no additional damages can be recovered from the
agents.

Id. at 12.

If that were all this action sought, the
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principle so expounded may be determinative, although the West
Virginia Supreme Court has not had occasion to consider it.

But

much more is at stake, exemplified by the fraud claim.
Brotherhood also argues that it has agreed to
compensate plaintiffs for all reasonable attorneys’ fees in
Civil Action No. 2:16-cv-00341, and that allowing recovery for
those fees in this action when they are recoverable in the other
action would be an improper double recovery.

Resp. at 15.

Brotherhood attached the reservation of rights letter to Bible
Baptist Church, which specifies defense of the claims, as
Exhibit B to its response to the motion to remand.
Plaintiffs reply that the suggestion that they have no
damages “in connection with the conduct of Defendants Peters and
Consultants is simply preposterous.”

Rep. at 6.

They reference

months of litigation in the declaratory judgment action, as well
as embarrassment and inconvenience resulting from being publicly
called liars in connection with the application process for
liability insurance.

Id.

The court finds that plaintiffs are alleging damages
in this action that go well beyond merely recovering the value
of the insurance policy.

The argument respecting a possible

double recovery of attorney fees as between this action and the
declaratory judgment litigation is without merit inasmuch as it
is unrealistic that the attorney fees allowed in the declaratory

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judgment action would purport to cover the attorney fees in this
case.

Moreover, Brotherhood itself represents in the notice of

removal that the amount in controversy exceeds the
jurisdictional threshold.

Notice of Removal at 6-11.

The

appropriateness of particular amounts and types of damages can
be adjudicated at a later date.
As an initial matter, the court observes that in West
Virginia, an action does lie against an insurance agent for
negligence in circumstances similar to those in this case.

In

Jarvis v. Modern Woodmen of America, the state supreme court
reviewed a verdict for a plaintiff who was the beneficiary of a
life insurance policy issued on her late husband.

Judgment on

the verdict was entered against both the insurance company,
Modern Woodmen, and its agent Charles L. Webb.
738 (W. Va. 1991).

406 S.E.2d 736,

The supreme court treated the existence of

the cause of action against the agent Webb as a matter of
course, stating:
In Syllabus Point 2, Harless v. First Nat'l. Bank
in Fairmont, 169 W. Va. 673, 289 S.E.2d 692 (1982),
we stated:
“An agent or employee can be held personally liable
for his own torts against third parties and this
personal liability is independent of his agency or
employee relationship. Of course, if he is acting
within the scope of his employment, then his
principal or employer may also be held liable.”
Syllabus Point 3, Musgrove v. Hickory Inn, Inc.,
168 W. Va. 65, 281 S.E.2d 499 (1981).

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Id. at 743.

In Modern Woodmen, the plaintiff asserted that the

agent Webb had made several material misrepresentations on the
insurance application, including a statement that her husband,
the insured, was a non-smoker even though he was smoking during
the meeting with Webb.

Id. at 738-39.

Inasmuch as Webb’s

actions constituted gross, reckless or wanton negligence, the
supreme court approved the trial court’s submission to the jury
of the question of the source of the misrepresentations on the
application and upheld the award of $500,000 in punitive damages
alongside $100,000 in economic losses and $25,000 in noneconomic losses against both defendants. 2

Id. at 741, 744.

Earlier the state supreme court reached a similar
conclusion in Musgrove v. Hickory Inn, Inc., where it stated:
We said in Fleming v. Nay, 120 W. Va. 625, 630, 200
S.E. 577, 579 (1938), that the doctrine of
respondeat superior does not relieve the servant of
his tort liability.
This principle rests on the
fact that an agent or employee can be held
personally liable for his own torts against third
parties and this personal liability is independent
of his agency or employee relationship. This same
rule is generally accepted elsewhere.
281 S.E.2d 499, 501 (W. Va. 1981).
The complaint features factual allegations that
support the claim of fraud asserted against CIC and Peters.

2

Inasmuch as liability against the agent is not contractual, Modern Woodmen
is not in conflict with the proposition in Shrewsbery v. National Grange
Mutual Insurance Co., 395 S.E.2d 745, 748 (W. Va. 1990) that an insurance
agent “is not party to a contract with the insured.”
9

Specifically, these defendants are said to have falsely
represented to Bible Baptist Church and Waldeck that the
Brotherhood insurance policy being obtained would cover Blue
Creek Academy, inducing detrimental reliance on such
misrepresentations.

Compl. at ¶¶ 77-80.

The court finds it

noteworthy that Peters testified in the declaratory judgment
proceeding (that is, with Brotherhood’s knowledge before removal
of this case) that, in the scope of his employment with CIC, he
visited Blue Creek Academy and took measurements and
photographs.

Id. at ¶ 20.

Indeed, Brotherhood was aware of the

existence of the school from the time that Waldeck submitted the
initial application.

Id. at ¶ 21.

Peters also admitted that he

prepared the second application, which did not include the
school, on his own and not at Waldeck’s request.

Waldeck and

the church never received any documentation pertaining to the
submission of that second application, which in effect procured
a policy that excluded the school.

Id. at ¶ 23.

To be sure, some of these actions, viewed separately,
can be characterized as negligent, but it can nonetheless hardly
be said that a reasonable finder of fact might not see them,
taken together, as supporting a fraud claim against Peters and
his principal, CIC, as well as Brotherhood.

In addition, years

later, after the allegations of abuse against the two Blue Creek
Academy students surfaced and Brotherhood brought a declaratory
judgment proceeding to deny coverage to the church for them,
10

Peters allegedly signed an affidavit, whose purpose appears to
have been to support denial of coverage to the plaintiffs under
the policy and which he later disavowed under questioning in the
declaratory judgment action.

Id. at ¶ 85.

Considering the

totality of the allegations in the complaint and the supporting
evidence above cited, the court concludes that the fraud claim
is adequately pled, with evidentiary support, as to Peters and
CIC, together with attendant damages that are in no sense
limited to the value of the insurance policy.
As earlier noted, “[t]he party alleging fraudulent
joinder bears a heavy burden — it must show that the plaintiff
cannot establish a claim even after resolving all issues of law
and fact in the plaintiff's favor.”

Hartley v. CSX Transp.,

Inc., 187 F.3d 422, 423 (4th Cir. 1999).

For the foregoing

reasons, Brotherhood has not met this heavy burden.

Inasmuch as

the court is unable to conclude that CIC and Peters were
fraudulently joined, it does not have subject matter
jurisdiction, and the case must be remanded to the Circuit Court
of Kanawha County.

See also, e.g., Lawson v. Am. Gen. Assur.

Co., 455 F. Supp. 2d 526, 530, 531 (S.D.W. Va. 2006) (finding
that the agent was not fraudulently joined and ordering remand
when plaintiffs asserted an independent action for reasonable
expectation of insurance).

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IV.

Costs and Attorney’s Fees

Plaintiffs also request an award of attorney’s fees
and expenses incurred in connection with the removal.

They

assert that Brotherhood “simply ignored” independent causes of
action asserted against the agents.

Pffs. Memo. at 15.

Aside

from attorney fees incurred as a result of Brotherhood’s
removal, the plaintiffs note that their discovery in this case
has been delayed by the removal, which delay has been augmented
by the court’s stay of this action upon the request of
Brotherhood and Peters and CIC.

Brotherhood counters, referring

only to causes in which recovery is limited to the coverage
fixed by the policy, that because this is a case of first
impression in West Virginia on that issue, imposition of costs
and fees is not warranted.
As plaintiffs point out, id. at 14-15, the Supreme
Court has enunciated a standard for awarding attorney’s fees in
the context of removal and remand under 28 U.S.C. § 1447(c).

It

stated that “absent unusual circumstances, attorney's fees
should not be awarded when the removing party has an objectively
reasonable basis for removal.”

Martin v. Franklin Capital

Corp., 546 U.S. 132, 136 (2005).
The court agrees with plaintiffs that defendants
lacked an objectively reasonable basis to remove this case.
addition to the negligence claim, there are credible
12

In

THOMAS PARKER,
Plaintiff,
v.
Civil Action fraud
allegations, accompanied by evidentiary support, of No. 15-14025
THE DOW CHEMICAL COMPANY LONG TERM DISABILITY PROGRAM,
against the nondiverse defendants, with their own potential
an Employee Welfare Benefits Plan,
damages, LIFE ASSURANCE subject to a policy limit defense.
LIBERTY which are not COMPANY OF BOSTON,
a Massachusetts Corporation, and
Brotherhood, after its adverse experience in its declaratory
DOES 1 THROUGH 10, inclusive,
judgment action, ought to have been aware of the viable fraud
Defendants.
claims of Bible Baptist Church AND NOTICE Waldeck against Stephen
ORDER and James
Peters and Church Insurance Consultants, Inc. at the time of
Pursuant to L.R. Civ. P. 16.1, it is ORDERED that the
following dates are hereby fixed as the time by or on which
removal. Accordingly, the plaintiffs’ request for attorney’s
certain events must occur:
fees and costs Motions under F.R. Civ. P. 12(b), together with
is granted.
01/28/2016
supporting briefs, memoranda, affidavits, or other
such matter in support thereof. (All motions
unsupportedV. memoranda will be denied without
by Conclusion
prejudice pursuant to L.R. Civ. P. 7.1 (a)).
02/08/2016For the foregoing Rule 26(f)it is ORDERED that the case
Last day for reasons, meeting.
be remanded to Last Circuit file Report of Parties= Planning
the day to Court of Kanawha County, West
02/15/2016
Meeting. See L.R. Civ. P. 16.1.
Virginia. The court withholds entry of final judgment to that
02/22/2016
effect pending Scheduling conference at 4:30 attorney’s fees and C.
submission of a petition for p.m. at the Robert
Byrd United States Courthouse in Charleston, before
costs which is the be filed on or before August 20, 2018.
to undersigned, unless canceled. Lead counsel
directed to appear.
02/29/2016The Clerk is directed to order.
Entry of scheduling forward copies of this
03/08/2016
Last day to serve F.R. Civ. P 26(a)(1) and any
memorandum opinion and order to all counsel of record disclosures.
unrepresented parties. requested to transmit this Order and
The Clerk is
Notice to all counsel of record and to any unrepresented
parties.
ENTER: August 1, 5, 2016
DATED: January 2018
John T. Copenhaver, Jr.
United States District Judge

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