United States District Court, S.D. West Virginia, Huntington Division
THOMAS H. FLUHARTY, Trustee of the Bankruptcy Estates of Dennis Ray Johnson, II No. 316-BK-30227; DJWV2, LLC No. 316-BK-30062; Southern Marine Services, LLC No. 316-BK-30063; Southern Marine Terminal, LLC No. 317-BK-30064; Redbud Dock, LLC No. 316-BK-30398; Green Coal, LLC No. 316-BK-30399; Appalachian Mining & Reclamation, LLC No. 316-BK-30400 Producer's Land, LLC 316-BK-30401; Producer's Coal, Inc. 316-BK-30402; Joint Venture Development, LLC No. 316-BK-30403, Plaintiffs,
PEOPLES BANK, NA, PEOPLES INSURANCE AGENCY, LLC, and GREAT AMERICAN INSURANCE COMPANY OF NEW YORK. Defendants.
MEMORANDUM OPINION AND ORDER
C. CHAMBERS UNITED STATES DISTRICT JUDGE.
American Insurance Company of New York's (“Great
American”) Motion to Dismiss is currently pending
before this Court. In that motion, Great American requests
that this Court dismiss Plaintiff's claims against it.
Supporting that request, Great American argues, in essence,
that Plaintiff has admitted noncompliance with the terms of
the insurance policy. Great Am.'s Mot. to
Dismiss, ECF No. 20, at 1-2. Based upon that alleged
noncompliance, Great American contends that Plaintiff can
neither maintain a breach of contract claim nor a bad faith
claim. Id. at 2. However, as explained below, the
Court disagrees with Great American's argument.
Therefore, the Court DENIES Great
American's Motion to Dismiss (ECF No. 20).
previously addressed other motions to dismiss filed in this
case, the Court will not recount the complete, complex
factual background of this case. For a brief overview of the
facts of this case, review the orders already issued by this
Court. See Fluharty v. Peoples Bank, NA (“June
Order”), No. 3:17-4220, 2018 WL 3097329, at *1-*2
(S.D. W.Va. June 22, 2018) (describing background);
Fluharty v. Peoples Bank, NA (“April
Order”), No. 3:17-4220, 2018 WL 1954829, at *1
(S.D. W.Va. Apr. 24, 2018) (same).
the Court will provide a brief introduction of the facts
particular to Great American's involvement in this
matter. Great American issued an insurance policy to one of
the Coal Group entities, Southern Marine Terminal LLC
(“SMT”), with the Policy No. MAC 4025594.
Great Am.'s Mem. in Supp. of Mot. to Dismiss,
ECF No. 21, at 3. That policy, effective from November 21,
2014 until November 21, 2015, covered SMT's Ivel coal
wash plant. See Id. at 2-3. The Ivel plant suffered
a belt collapse on May 18, 2018, which caused physical damage
to the facility and hampered the operation of both SMT
specifically and the Coal Group generally. See June
Order, at *1-*2.
submitted claims for both property loss and business
interruption arising from the belt collapse. Compl.,
ECF No. 1, at ¶¶ 34, 50. Although Great American
did issue payment for the property loss claim, it refused to
pay out on the business interruption claim beyond a $100, 000
advance in early December of 2015. Id. at
¶¶ 50, 65, 80, 85, 218. From these circumstances,
Plaintiff brought the current claims against Great American.
claims that Great American's actions constitute two
separate, wrongful acts.First, Plaintiff claims that Great
American, in concert with the other defendants, made the
payment for the property damage claim in bad faith.
Id.; Pl.'s Resp. to Great Am.'s Mot. to
Dismiss, ECF No. 32, at 7. And, second, Plaintiff claims
that Great American refused to fulfill its obligations to
satisfy in full the business interruption claim.
Id.; Pl.'s Resp. to Great Am.'s Mot. to
Dismiss, ECF No. 32, at 7.
American bases its argument for dismissal upon two basic
premises: (1) “Plaintiff's Complaint fails to state
a breach of contract claim;” (2) “Plaintiff
admits [through allegations contained in his Complaint] that
SMT failed to comply with the [insurance policy's]
conditions precedent.” Great Am.'s Mem. in
Supp. of Mot. to Dismiss, at 7, 9. The second premise,
according to Great American, requires dismissal for two
independent, but related reasons. Failure to comply, or
allege compliance, with the conditions precedent of the
insurance policy contract both prevents Plaintiff from
bringing a “legal action” against Great American,
and “negates coverage under the Policy.”
Id. 9-14. In other words, because SMT did not comply
with the conditions precedent as laid out in the contract, he
cannot bring suit under the contract, and the policy coverage
terminated, thus there was no effective obligation under
which Plaintiff can state a claim.
Great American focuses upon Plaintiff's, or SMT's,
failure “to submit to an examination under oath [or]
provide proof of loss.” Great Am.'s Mem. in
Supp. of Mot. to Dismiss, at 12. According to the
insurance policy contract, those two conditions precedent
must be fulfilled before “[an insured] may bring a
legal action against [Great American] under this
[policy].” Id. at 3. Great American points out
that Plaintiff “admits that SMT failed to comply”
with these requirements. Id. at 9. As such Great
American argues that Plaintiff cannot maintain a lawsuit
against it under the insurance policy contract.
addition to arguing that Plaintiff improperly commenced this
action, Great American contends that Plaintiff's failure
to satisfy those two conditions precedent prior to filing
suit “negates coverage under the Policy.”
Id. at 13. Failure to comply with the policy
contract's terms, Great American reasons, breaches the
contract, and thereby ends coverage. Thus, where no coverage
exists, Great American contends that Plaintiff may not
maintain his bad faith claims on behalf of SMT and the Coal
Group. Cognizant of these arguments made by Great American,
the Court reviews Plaintiff's Complaint under the
overcome a motion to dismiss under Federal Rule 12(b)(6), a
complaint must state a plausible claim. Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 546 (2007). This standard
requires a plaintiff to set forth the “grounds”
for an “entitle[ment] to relief” that is more
than mere “labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not
do.” Id. at 555 (internal quotations and
citations omitted). A complaint must contain
“sufficient factual matter, accepted as true, to state
a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(internal quotations and citation omitted). Facial
plausibility exists when a claim contains “factual
content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Id. (citation omitted).
the Court accepts the factual allegations in the complaint as
true. Those allegations, however, “must be enough to
raise a right to relief above the speculative level . . . .
” Twombly, 550 U.S. at 555 (citations
omitted). If the allegations in the complaint, assuming their
truth, do “not raise a claim of entitlement to relief,
this basic deficiency should . . . be exposed at the point of
minimum expenditure of time and money by the parties and the
court.” Id. at 558 (internal quotations and
citations omitted). “Although for the purposes of a
motion to dismiss we must take all of the factual allegations
in the complaint as true, we are not bound to accept as true
a legal conclusion couched as a factual allegation.”
Iqbal, 556 U.S. at 678 (internal quotations and
this case under federal question subject matter jurisdiction
with supplemental state law claims, the Court must apply the
choice of law analysis of the forum state to determine what
law applies to the claims. See In re Merritt Dredging
Co., Inc., 839 F.2d 203, 205-06 (4th Cir. 1988)
(“[I]n absence of a compelling federal interest which
dictates otherwise, the [rule of applying the forum's
choice of law analysis] should prevail . . . .”);
see also Mitchell v. HCL Am., Inc., 190 F.Supp.3d
477, 487-88 (E.D. N.C. 2016) (“In federal question
cases with supplemental state law claims, the court applies
the forum state's choice of law analysis absent an
‘overwhelming federal policy that requires the court to
formulate a choice of law rule as a matter of independent
federal judgment.'” (quoting In re Merritt
Dredging Co., Inc., 839 F.2d at 206)). As such, the
Court applies West Virginia conflicts of law principles to
determine which law applies to the insurance policy.
West Virginia conflicts of law analysis, a court reviewing
questions regarding an insurance policy should apply the
conflicts rules applicable to contracts. Howe v.
Howe, 625 S.E.2d 716, 721 ( W.Va. 2005). Generally, the
law of the state where the policy was issued and performed
controls an insurance contractual relationship. Kenney v.
Indep. Order of Foresters, No. 3:12-CV-123, 2013 WL
1314596, at *4 (N.D. W.Va. Mar. 27, 2013) (citing Lee v.
Saliga, 373 S.E.2d 345, 348 ( W.Va. 1988)); see also
Mass. Mut. Life Ins. v. Factory Mut. Ins. Co., No.
3:05-CV-69, 2007 WL 3273452, at *2 (N.D. W.Va. 2007) (citing
same). But West Virginia courts recognize multiple exceptions
to that general rule of application. The place where the
policy was issued and performed will control unless: (1) the
parties made a choice of applicable law in the contract; (2)
the other state law offends West Virginia public policy; or
(3) another state has a more “significant
relationship” to the parties or the policy. See
Howe, 625 S.E.2d at 721-22; Kenney, 2013 WL
1314596, at *4; Mass. Mut. Life Ins. Co., 2007 WL
3273452, at *1-*2. In this case, the policy was issued in
Kentucky, to a Kentucky company, and the loss at the center
of the claims against Great American occurred in Kentucky.
See Great Am.'s Mem. in Supp. of Mot. to
Dismiss, at 6. And none of the three exceptions to the
general rule apply in this case. Therefore, the Court will
proceed to analyze Great American's motion under the
substantive law of Kentucky.
to Great American's first argument for dismissal, the
Court does not find it convincing. Great American argues that
because “Plainitff's Complaint . . . only vaguely
alleged that Great American has breached its contract,
” Plaintiff's claims must be dismissed as a matter
of law. Great Am.'s Mem. in Supp. of Mot. to
Dismiss, at 7-8. Great American attempts to advance its
argument syllogistically, building upon two predicates.
First, it asserts that “a first-party bad faith claim
is predicated upon providing a breach of contract
claim.” Great Am.'s Reply in Supp., ECF
No. 37, at 2-3 (emphasis original). Second, Great American
notes that Plaintiff has admitted that he has not stated a
claim for breach of contract. Id. Therefore, says
Great American, Plaintiff's bad faith claims must fail.
Id. This, however, distorts the elements for a bad
faith claim, as constructed by Kentucky courts.
Kentucky law, a plaintiff may maintain a bad faith claim
based upon any, or all, of these sources: a common law duty
of good faith or statutory duties under either the Consumer
Protection Act (Ky. Rev. Stat. Ann. § 367.110 et
seq.) or the Unfair Claims Settlement Practices Act (Ky.
Rev. Stat. Ann. § 304.12-230). Davidson v. Am.
Freightways, Inc., 25 S.W.3d 94, 99-100 (Ky. 2000).
Despite the distinct sources of a bad faith claim, the
Supreme Court of Kentucky distilled the requirements of each
type of bad faith claim into a single test. Id. The
test consists of three elements that an insured must prove:
(1) the insurer must be obligated to pay the claim under the
terms of the policy; (2) the insurer must lack a reasonable
basis in law or fact for denying the claims; and (3) it must
be shown that the insurer either knew there was no reasonable
basis for denying the claim ...