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KC Transport, Inc. v. LM Insurance Corp.

United States District Court, S.D. West Virginia, Charleston Division

August 6, 2019

KC TRANSPORT, INC., et al., Plaintiffs,
v.
LM INSURANCE CORPORATION, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          THOMAS E. JOHNSTON, CHIEF JUDGE.

         Pending before the Court are Plaintiffs' Motion for Summary Judgment as to Defendant LM Insurance Corp. (“LM Insurance”), (ECF No. 124), Plaintiffs' Partial Motion for Summary Judgment on Counts XI and XII, (ECF No. 126), Defendant Selective Insurance Co. of America's (“Selective”) Motion for Summary Judgment, (ECF No. 128), and LM Insurance's Motion for Summary Judgment, (ECF No. 130).[1] For the reasons discussed more fully herein, the Court GRANTS LM Insurance's and Selective's motions for summary judgment. (ECF Nos. 128, 130.) The Court further DENIES Plaintiffs' motions for summary judgment. (ECF Nos. 124, 126.)

         I. BACKGROUND

         This case arises out of a coverage dispute between KC Transport, Inc. (“KC Transport”), its President, Lynn Compton, and one of its foremen, Eddie Compton, (“Plaintiffs”) and their insurance providers, LM Insurance and Selective, and their insurance broker, Defendant BB&T Insurance Services, Inc. (“BB&T”). (See ECF No. 66 (Am. Compl.).) KC Transport purchased insurance policies through BB&T which included a Workers' Compensation and Employers' Liability Policy issued by LM Insurance (“LM Insurance Policy”) and a Commercial General Liability Policy issued by Selective (“Selective Insurance Policy”). (See Id. at 2-3, 5 ¶¶ 9-17, 32.)

         A. LM Insurance and Selective Insurance Policies

         In 2014, BB&T applied for workers' compensation insurance on behalf of KC Transport through the Virginia assigned risk market. (See ECF No. 130-4 (Insurance Appl.).) LM subsequently issued the LM Insurance Policy for the period of May 1, 2014 to May 1, 2015. (See ECF No. 66 at 2-3 ¶ 9.) The policy was subsequently renewed for the period of May 1, 2015 to May 1, 2016. (Id. at 3, ¶ 10.) Both the original policy and the renewed policy state the following, in relevant part, regarding coverage:

         3. Coverage

A. Workers Compensation Insurance: Part One of the policy applies to the Workers Compensation Law of the states listed here: VA
C. Other States Insurance: Part Three of the policy applies to the states, if any, listed here: REFER TO RESIDUAL MARKET LIMITED OTHER STATES INSURANCE ENDORSEMENT WC 00 03 26A.

(ECF No. 130-6 at 23 (2014 LM Insurance Policy).) The Residual Market Limited States Insurance Endorsement (“RMLOSIE”) states the following in relevant part:

We will pay promptly when due the benefits required of you by the workers compensation law of any state not listed in 3.A. of the Information Page if all of the following conditions are met:
a. The employee claiming benefits was either hired under a contract of employment made in a state listed in Item 3.A. of the information Page; and b. The employee claiming benefits is not claiming benefits in a state where, at the time of injury, (i) you have other workers compensation insurance coverage, or (ii) you were, by virtue of the nature of your operations in that state, required by that state's law to have obtained separate workers compensation insurance coverage, or (iii) you are an authorized self-insurer or participant in a self-insured group plan; and c. The duration of the work being performed by the employee claiming benefits in the state for which that employee is claiming benefits is temporary.

(ECF No. 130-7 at 30.)

         On November 22, 2014, KC Transport entered into a Coal Haul Agreement with Hampden Coal, LLC (“Hampden Coal”) pursuant to which KC Transport began hauling coal in West Virginia. (See ECF No. 66 at 3, ¶ 14.) On October 7, 2015, BB&T submitted a policy change request on behalf of KC Transports to LM Insurance. (See ECF No. 130-11 (Acord Commercial Policy Change Req.).) KC Transport paid the additional premium on December 2, 2015, and LM Insurance added coverage for West Virginia to the policy the next day. (See ECF No. 139 at 4.)

         Through BB&T, KC Transport also purchased the Selective Insurance Policy that was effective from April 22, 2015 to April 22, 2016. This policy included General Liability Coverage and Commercial Umbrella Coverage. (See ECF No. 128-1 (Selective Insurance Policy).)

         B. Underlying Claims and Lawsuits Against KC Transport

         In late 2015, Dan Kinder (“Kinder”), an employee of KC Transport, filed for workers' compensation benefits under the West Virginia Workers' Compensation Act (“WCA”) for injuries he allegedly sustained while in the course of his employment with KC Transport. (ECF No. 131 at 3.) On October 7, 2015, KC Transport reported Kinder's claim to BB&T and LM Insurance for coverage. (See ECF No. 138 at 6.) In a letter dated November 10, 2015, LM Insurance denied coverage for the claim, stating that the policy did not cover West Virginia claims and coverage was not available under the RMLOSIE. (See ECF No. 130-9 (Kinder Denial Letter).)

         After he was terminated, Kinder filed a complaint against KC Transport, Eddie Compton, and Hampden Coal in the Circuit Court of Mingo County, West Virginia. (ECF No. 66 at 6, ¶¶ 41, 44; ECF No. 130-8 (Kinder Compl.).) On October 3, 2016, Hampden Coal filed a cross claim against KC Transport alleging that KC Transport agreed to defend and indemnify Hampden Coal. (ECF No. 66 at 7, ¶ 47.) Plaintiffs submitted Hampden Coal's claims to LM Insurance. (See id. ¶¶ 49-51.) LM Insurance denied coverage. (See ECF No. 126-6 at 7 (Hampden Denial Letter).) Plaintiffs subsequently submitted all of the above claims to Selective for defense and indemnification. (ECF No. 66 at 7, ¶ 52.) Selective also denied coverage. (Id. ¶ 53, 56-57.)

         Another KC Transport employee, Chet Cline (“Cline”), filed for workers' compensation benefits under the WCA for injuries he allegedly sustained while in the course of his employment with KC Transport. (See Id. at 10, ¶ 77; ECF No. 131 at 3.) In a letter dated November 13, 2015, LM Insurance denied Cline's claim, citing the same reasons for denial as it did for denying Kinder's claims. (ECF No. 66 ¶ 78; see also ECF No. 130-10 (Cline Denial Letter).)

         KC Transport employee Kevin Christian (“Christian”) also filed a WCA claim for injuries he allegedly sustained while working for KC Transport. (See ECF No. 66 at 10, ¶ 74.) In a letter dated November 30, 2015, LM Insurance denied coverage for Christian's claim for the same reasons as it denied Kinder's and Cline's claims. (See ECF No. 130-13 (Christian Denial Letter).) However, LM Insurance noted that KC Transport's request to add West Virginia coverage was still pending and the additional premium had not been paid. (See id.)

         Lastly, KC Transport employee Bobby Steele (“Steele”) filed a claim under the WCA for injuries he allegedly sustained on February 4, 2016, while in the course of his employment with KC Transport. (See ECF No. 66 at 8, ¶¶ 58-59.) LM Insurance denied the claim, finding that Steele's injury did not arise out of or in the course of his employment. (See ECF No. 131 at 4.)

         Following his termination, Steele filed a complaint against KC Transport and Blackhawk Mining in the Circuit Court of Mingo County, West Virginia, alleging claims for negligence and wrongful termination/retaliatory discharge. (See ECF No. 130-16 (Steele Compl.).) On August 15, 2016, Plaintiffs submitted Steele's action to LM Insurance for defense and/or indemnification. (ECF No. 66 at 8-9, ¶ 64.) On November 16, 2016, LM Insurance denied coverage. (Id. ¶ 66.) On May 16, 2017, Plaintiffs submitted these claims to Selective for a defense and/or indemnification. (Id. ¶ 69.) In a letter dated August 24, 2016, Selective also denied coverage. (Id. at 9-10, ¶¶ 70, 73.)

         C. Procedural History

         On January 2, 2018, Plaintiffs filed the present action alleging the following claims against Defendants: Declaratory Judgment on Plaintiffs' insurance policy with LM Insurance (Count I); Breach of Contract against LM Insurance (Count II); Common Law Bad Faith against LM Insurance (Count III); Violation of the West Virginia Unfair Trade Practices Act (“WVUTPA”) against LM Insurance (Count IV); Estoppel against LM Insurance and BB&T (Count V); Reasonable Expectation against LM Insurance and BB&T (Count VI); Negligence against BB&T (Count VII); Breach of Contract against BB&T (Count VIII); Breach of Fiduciary Duty against BB&T (Count IX); Failure to Procure against BB&T (Count X); Declaratory Judgment on Plaintiffs' insurance policy with Selective Insurance (Count XI); Breach of Contract against Selective Insurance (Count XII); Common Law Bad Faith against Selective Insurance (Count XIII); and Violations of the WVUTPA against Selective Insurance (Count XIV). (See ECF No. 1.)

         On April 13, 2018, Selective filed a motion to bifurcate the breach of contract claims from the bad faith claims and to stay further proceedings on the bad faith claims pending resolution of the breach of contract claims, to which LM Insurance and BB&T joined. (See ECF No. 31; see also ECF Nos. 36, 39.) In an order dated July 30, 2018, this Court granted the motion and stayed further proceedings, including discovery, in connection with the bad faith claims. (ECF No. 65.) The order further stayed Plaintiffs' claims against BB&T. (See id.)

         On February 22, 2019, Plaintiffs filed their present motions for summary judgment. (ECF No. 124, 126.) Selective and LM Insurance timely responded to Plaintiffs' motions. (ECF Nos. 133, 139.) Plaintiffs did not file replies. Selective and LM Insurance subsequently filed their respective motions for summary judgment, (ECF Nos. 128, 130), to which Plaintiffs timely responded, (ECF Nos. 137, 138), and LM Insurance and Selective timely replied, (ECF Nos. 141, 142.) Although the claims against it are stayed, BB&T also filed a response to all four motions. (ECF No. 136.) As such, all four motions are fully briefed and ripe for adjudication.

         II. LEGAL STANDARD

         Pursuant to Federal Rule of Civil Procedure 56, summary judgment should be granted if “there is no genuine issue as to any material fact.” “Facts are ‘material' when they might affect the outcome of the case, and a ‘genuine issue' exists when the evidence would allow a reasonable jury to return a verdict for the nonmoving party.” News & Observer Publ. Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010). When construing such factual issues, the Court must view the evidence “in the light most favorable to the [party opposing summary judgment].” Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970).

         The moving party may meet its burden of showing that no genuine issue of fact exists by use of “depositions, answers to interrogatories, answers to requests for admission, and various documents submitted under request for production.” Barwick v. Celotex Corp., 736 F.2d 946, 958 (4th Cir. 1984). Once the moving party has met its burden, the burden shifts to the nonmoving party 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 the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If a party fails to make a sufficient showing on one element of that party's case, the failure of proof “necessarily renders all other facts immaterial.” Id. at 323.

         “[A] party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial.” Liberty Lobby, 477 U.S. at 256. “The mere existence of a scintilla of evidence” in support of the nonmoving party is not enough to withstand summary judgment; the judge must ask whether “the jury could reasonably find for the plaintiff.” Id. at 252.

         III. DISCUSSION

         Cross-motions for summary judgment are reviewed separately if material facts are in dispute. Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003). Here, the Court does not find that material facts are in dispute. Thus, for brevity's sake, the parties' various arguments are woven together in a single discussion. The Court will begin with Plaintiffs' claims against LM Insurance.

         A. LM Insurance

         As a preliminary matter, the Court must first determine whether West Virginia or Virginia law applies to Plaintiffs' claims against LM Insurance. As this case is before this Court on diversity jurisdiction, the Court must apply West Virginia choice of law principles. See Soyoola v. Oceanus Ins. Co., No. 2:13-cv-08907, 2013 WL 3821455, at *1 (S.D. W.Va. 2013) (citing Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941)). Under West Virginia law, “the interpretation of insurance policy coverage, rather than liability, is treated as a contract question for purposes of conflicts analysis.” Liberty Mut. Ins. Co. v. Triangle Indus., Inc., 390 S.E.2d 562, 565 (W.Va. 1990). When analyzing a conflict of law question involving a contract, “[t]he law of the state in which a contract is made and to be performed governs [its] construction. . . .” See Soyoola, 2013 WL 3821455, at *1 (quoting Triangle Indus., 390 S.E.2d at 565). “A contract is made at the time when the last act necessary for its formation is done, and at the place where the final act is done.” Carper v. Kanawha Banking & Trust Co., 207 S.E.2d 897, 901 (W.Va. 1974) (syl., pt. 8). This is generally where the policy is issued. See Mulvey Const., Inc. v. Bituminous Cas. Corp., 571 Fed.Appx. 150, 155 (4th Cir. May 7, 2014) (“Therefore, where a party has made an offer to the insurance company by applying for insurance, the insurance company's issuance of the policy constitutes its acceptance.”).

         The Supreme Court of Appeals of West Virginia has also considered whether “another state has a more significant relationship to the transaction and the parties, or the law of the other state is contrary to the public policy of this state.” See Id. This “more significant relationship” test, found in Restatement (Second) of Conflict of Laws § 6, provides the following factors for consideration in determining whether another forum has a more significant relationship:

(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.

See Triangle Indus., 390 S.E.2d at 567 (citing Restatement (Second) of Conflict of Laws § 6(2)(a)- (g)).

         Here, the undisputed factual record shows that the original LM Insurance Policy and the renewal was negotiated by BB&T, a Virginia insurance broker, issued to KC Transport in Virginia, and was intended to cover Virginia operations and Virginia Workers' Compensation claims. (See ECF No. 130-4; 130-7; see also ECF No. 130-6 at 23.) Coverage for West Virginia was not added until seven months after the policy was renewed for a second year. (See ECF No. 130-7 at 37.) Additionally, there is no indication that either party would have reasonably expected, at the time the contract was entered into, that any litigation pertaining to the policy would be based upon West Virginia law. See Triangle Indus., 390 S.E.2d at 567; see, e.g., Mulvey Const., Inc., 571 Fed.Appx. at 157 (“Although the . . . accident [was] in West Virginia, the centerpiece of this litigation is the interpretation of the insurance contract, which was formed in Virginia. Thus, the parties to the contract reasonably should have expected that Virginia law would apply.”). Thus, as the contract was formed and to be performed in Virginia and West Virginia does not have a more significant interest in the present action, Virginia law should apply.

         Further, the public policy exception does not preclude the application of Virginia law. The “public policy exception ‘is necessarily a narrow one, to be invoked only in extraordinary circumstances.'” Mulvey Const., Inc., 571 Fed.Appx. at 157 (quoting Yost v. Travelers Ins. Co., No. 98-cv-1790, 1999 WL 409670, at *6 (4th Cir. June 21, 1999)). “The mere fact that the substantive law of another jurisdiction differs from or is less favorable than the law of the forum state does not, by itself, demonstrate that application of the foreign law under recognized conflict of laws principles is contrary to the public policy of the forum state.” Nadler v. Liberty Mut. Fire Ins. Co., 424 S.E.2d 256, 258 (syl. pt. 3) (W.Va. 1992). Further, the West Virginia Supreme Court of Appeals has stated that the public policy exception is not met unless the law of the other state is “contrary to pure morals or abstract justice” or “enforcement would be of evil example and harmful to [West Virginia's] own people.” Nadler, 424 S.E.2d at 265. Here, the most relevant difference between Virginia and West Virginia contract law is that Virginia law does not consider the reasonable expectations of the insured. However, Plaintiffs have not demonstrated that this difference warrants the application of the public policy exception. See Mulvey Const., Inc., 571 Fed.Appx. at 158. Accordingly, the Court FINDS that Virginia law applies here. See Midland Meadows Senior Living, LLC v. First Mercury Ins. Co., No. 3:13-cv-26563, 2014 WL 1772562, at *3 (S.D. W.Va. May 2, 2014) (finding that Pennsylvania had a stronger interest where the insurance contract was negotiated by a Pennsylvania insurance broker and delivered in Pennsylvania and the only connection to West Virginia was the underlying lawsuit).

         1. Reasonable Expectation of Coverage

         As stated above, Kinder, Cline, and Christian all filed workers' compensation claims, alleging that they were injured while working for KC Transport in West Virginia. See supra Part I.B. In their Amended Complaint, Plaintiffs allege that LM breached their insurance contract with Plaintiffs by denying coverage for the above claims against KC Transport. (See ECF No. 66 at 12.) ...


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