STATE OF WEST VIRGINIA EX REL. STATE AUTO PROPERTY INSURANCE COMPANIES d/b/a STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY, Petitioner
THE HONORABLE JAMES C. STUCKY, JUDGE OF THE CIRCUIT COURT OF KANAWHA COUNTY, WEST VIRGINIA; AND CMD PLUS, INC. Respondent
Submitted: September 19, 2017
PROCEEDING IN PROHIBITION
K. Taylor, Esq. William P. Margelis, Esq. Taylor Law Office
Morgantown, West Virginia Counsel for the Petitioner.
Charles M. Johnstone, II, Esq. David A. Dobson, Esq.
Johnstone & Gabhart, LLP Charleston, West Virginia
Counsel for the Respondent CMD Plus, Inc.
BY THE COURT
motion for summary judgment should be granted only when it is
clear that there is no genuine issue of fact to be tried and
inquiry concerning the facts is not desirable to clarify the
application of the law." Syl. pt. 3, Aetna Cas. and
Sur. Co. v. Fed. Ins. Co. of N.Y., 148 W.Va. 160, 133
S.E.2d 770 (1963).
original prohibition proceeding concerns a liability
insurance policy. It is a commercial general liability policy
issued by the petitioner, State Auto Property Insurance
Companies ("State Auto"), to its insured,
respondent CMD Plus, Inc. ("CMD").
residential construction company, contracted to build a home
for Chandrakant N. and Kimberly S. Shah in Charleston, West
Virginia. The construction activities caused ground slippage
resulting in damage to the house and property of the
adjacent, downhill homeowners, Barry G. Evans and Ann M.
Evans ("Plaintiffs"). The plaintiffs filed an
action in the Circuit Court of Kanawha County against the
Shahs and CMD seeking recovery for their damage.
filed a third-party complaint against its insurer State Auto
alleging that State Auto delayed investigating the
plaintiffs' claim, settling the plaintiffs' lawsuit,
and indemnifying CMD. CMD asserted that, as a result, State
Auto committed common law bad faith, violations of the
West Virginia Unfair Trade Practices Act, and breach
of contract. State Auto's efforts to obtain a dismissal
of CMD's third-party complaint were unsuccessful. In the
current petition for a writ of prohibition filed in this
Court, State Auto challenges the circuit court's March 2,
2017, denial of State Auto's motion for summary judgment.
State Auto contends there is no genuine issue of material
fact and that it is entitled to a dismissal of CMD's
third-party complaint as a matter of law.
record, including the exhibits filed in support of State
Auto's motion for summary judgment, reveals that State
Auto defended and indemnified its insured, CMD, throughout
the lawsuit as required by the commercial general liability
policy. We note that, while the policy was purchased to
provide liability coverage for damage to property sustained
by third parties, such as the plaintiffs, the terms of the
policy provided no coverage to CMD for damage to its own
Court concludes that relief in prohibition is warranted and
that State Auto is entitled to a dismissal of CMD's
third-party complaint as a matter of law.
The Underlying Action
contracted to build a custom home on a parcel in Charleston,
West Virginia, owned by the Shahs. The adjacent, downhill
property owners were the plaintiffs. Construction activities
on the Shah parcel resulted in surface water, storm water,
mud and debris inundating and damaging the plaintiffs'
house and property.
April 13, 2011, the plaintiffs filed a lawsuit in the Circuit
Court of Kanawha County against the Shahs and CMD. Asserting
causes of action for nuisance, trespass and negligence, the
plaintiffs sought compensatory damages as well as equitable
relief to prevent further interference with the use and
enjoyment of their property.
The Third-Party Complaint Against State Auto
insured for the damage to the plaintiffs' property under
a commercial general liability policy issued by State Auto
which provided coverage up to the policy limit of $1, 000,
000. CMD promptly notified State Auto of the damage to the
plaintiffs' property, and CMD asserts that, at that time,
the damage could have been remedied quickly and
inexpensively. State Auto advised CMD that it would handle
the claim. CMD states that State Auto then conducted a series
of inspections and investigations, thereby delaying a
potential settlement of the plaintiffs' lawsuit,
increasing the amount of the plaintiffs' property damage,
and resulting in the lawsuit filed against CMD by the
filed a third-party complaint against State Auto on March 20,
2012. The third-party complaint contained three Counts. Count
I alleged that State Auto committed common law bad faith
through its delay in resolving the property damage claim of
the plaintiffs and through its failure to protect CMD from
litigation. Count II alleged, for similar reasons, that State
Auto violated the West Virginia Unfair Trade Practices
Act, W.Va. Code, 33-11-1 , et
seq. Count III alleged a breach of State
Auto's contractual obligation to CMD by failing to make
insurance proceeds available where liability regarding the
plaintiffs' claim was clear.
Auto filed a motion to dismiss CMD's third-party
complaint on the ground that CMD lacked standing to assert
common law and statutory bad faith or unfair claims
settlement practices regarding how State Auto handled the
plaintiffs' lawsuit. According to State Auto, its only
obligation to its insured, CMD, was to defend the lawsuit and
indemnify CMD for any meritorious claims asserted by the
plaintiffs. State Auto contends that it defended CMD and
fully settled the plaintiffs' claims. State Auto alleged
that CMD's breach of contract theory fails for the same
reason, i.e., CMD lacks standing to assert any bad
faith claim the plaintiffs may have had regarding how State
Auto handled the lawsuit.
September 25, 2012, State Auto's motion to dismiss was
denied in part. The order entered by the circuit court stated
that the motion was denied "except that the Court will
not allow the Third-Party Plaintiff CMD Plus, Inc. to assert
claims that, in actuality, are claims of the Plaintiffs,
Barry G. Evans and Ann M. Evans. To the extent any such
claims have been asserted, those claims are dismissed."
the plaintiffs' lawsuit fully settled resulting in the
plaintiffs receiving $325, 000 paid by State Auto. The
plaintiffs executed an agreement discharging the Shahs, CMD
and State Auto from all claims arising from CMD's
Auto then filed a renewed motion to dismiss CMD's
third-party complaint on the ground that State Auto met its
obligations under the commercial general liability policy to
defend and indemnify CMD. State Auto asserted that
the duty to indemnify has not been breached because
litigation in the underlying matter was resolved by
settlement. Pursuant to the terms of that settlement, State
Auto paid to resolve all claims asserted by the [plaintiffs]
against CMD while securing a complete release of CMD of and
from any and all liability relating to the allegations
contained in the [plaintiffs'] Complaint. In fact, State
Auto has secured a release to make sure that CMD cannot be
sued again in the future. Under these circumstances, no
judgment was entered against CMD and no settlement was
negotiated wherein payment was demanded of CMD. Accordingly,
as a matter of law, CMD cannot set forth any set of facts
upon which it may base a claim for bad faith breach of the
insurance contract against State Auto.
November 10, 2015, the circuit court denied State Auto's
renewed motion to dismiss. In the order, the circuit court
simply restated each Count of CMD's third-party complaint
and concluded that the allegations were sufficient to allow
the matter to go forward. State Auto sought relief from the
November 10, 2015, order by filing a petition for a writ of
prohibition in this Court.
State ex rel. State Auto Property Insurance Companies v.
Stucky, 2016 WL 3410352 (W.Va. 2016), a Memorandum
Decision issued on June 14, 2016, this Court determined that
under Rule 12(b)(6) of the West Virginia Rules of Civil
Procedure our analysis of State Auto's requested
dismissal was limited to the allegations within the four
corners of CMD's third-party complaint. The settlement of
the lawsuit and other matters of evidence were not to be
considered. This Court concluded that CMD's allegations
of common law and statutory bad faith and breach of contract
were sufficiently pled to withstand State Auto's renewed
motion to dismiss. Therefore, relief in prohibition was
denied with the caveat that State Auto "could file a
motion for summary judgment after the completion of discovery
in order to obtain relief." (emphasis
State Auto's Motion for Summary Judgment
parties conducted discovery following the denial of relief in
prohibition. In January 2017 State Auto filed a motion for
summary judgment. State Auto asserted that there was no
question of fact that it had provided CMD with a defense in
the plaintiffs' lawsuit and that a settlement and release
of the plaintiffs' damage claim was secured at no cost to
CMD and without the entry of an adverse judgment. CMD filed a
response to the motion, asserting that summary judgment on
the third-party complaint was precluded by questions of fact.
A number of exhibits were filed by the parties in support of
their respective positions.
March 2, 2017, the circuit court denied State Auto's
motion for summary judgment on the basis of unresolved
questions of fact regarding CMD's allegations of common
law and statutory bad faith and breach of contract. Noting
CMD's assertion that State Auto's dilatory handling
of the plaintiffs' damage claim resulted in the filing of
the lawsuit, the circuit court concluded that CMD had a
first-party claim under West Virginia law "in that CMD
alleged that its insurer, State Auto, failed to use good
faith in settling a claim by someone the insured allegedly
harmed or injured."
current petition for a writ of prohibition, State Auto seeks
relief from the circuit court's March 2, 2017, order.
State Auto contends that it performed its obligations under
the commercial general liability policy and that, because
there are no genuine issues of material fact, CMD's
third-party complaint should be dismissed as a matter of law.
Standard for Relief in Prohibition
Court has original jurisdiction in prohibition proceedings
pursuant to art. VIII, § 3, of The Constitution of
West Virginia. In considering whether to grant relief in
prohibition, this Court stated in the syllabus point of
State ex rel. Vineyard v. O'Brien, 100 W.Va.
163, 130 S.E. 111 (1925): "The writ of prohibition will
issue only in clear cases where the inferior tribunal is
proceeding without, or in excess of, jurisdiction."