Opinion
CV-17-097
10-04-2017
CITIZENS INSURANCE COMPANY OF AMERICA, Plaintiff v. PHOENIX BAY STATE CONSTRUCTION CO., INC., WILLIAM A. BERRY & SON, INC., SUFFOLK CONSTRUCTION COMPANY, INC., MAINE MEDICAL CENTER, INC., and NORTH RIVER INSURANCE COMPANY, Defendants
ORDER ON PLAINTIFF'S MOTION TO DISMISS DEFENDANT MAINE MEDICAL CENTER'S COUNTERCLAIM
Nancy Mills Justice
Before the court is plaintiff and counterclaim defendant Citizens Insurance Company of America's motion to dismiss defendant Maine Medical Center's counterclaim. For the following reasons, the motion to dismiss is denied.
FACTS
The present action stems from an underlying lawsuit MMC brought against defendants William A. Berry & Son, Inc. and Suffolk Construction Company, Inc. in the United States District Court for the District of Maine. (Compl. ¶¶ 8-9; MMC's Ans. ¶¶ 8-9.) Phoenix Bay State Construction Co., Inc. is a third-party defendant in the underlying lawsuit. (Compl. ¶ 10; MMC's Ans. ¶ 10.) In that action, MMC is seeking to recover damages against Berry and Suffolk for alleged property damage to substantial additions made to the hospital located at 22 Bramhall Street in the City of Portland, Maine. (Compl. ¶ 11; MMC's Ans. ¶ 11.) MMC hired Berry to manage and lead the construction of the additions. (MMC's Countercl. ¶ 5.) Berry then hired Phoenix as a subcontractor to perform certain work for the additions. (Id.) The construction began in 2006. (Compl.¶ 11; MMC's Ans.¶ 11.)
In 2009, Suffolk acquired Berry's assets, including its obligations and liabilities to MMC with respect to the work. (Compl.¶ 13; MMC's Ans.¶ 13.)
MMC's contract with Berry mandated all subcontractors procure and maintain insurance coverage for their work on the addition and name MMC as an additional insured on the insurance policies. (MMC's Countercl. ¶¶ 19, 23.) In accordance with that requirement, Berry's subcontract with Phoenix provided as follows: "[Phoenix], at its own expense shall procure, carry and maintain on all its operations hereunder policies of insurance with coverage at a minimum in the amounts and limits as provided in Rider B . . . ." (Id. ¶ 20.) Moreover, the subcontract obligates Phoenix to "indemnify, defend and hold . . . [MMC] harmless to the fullest extent allowed by law from any and all loss, damage, cost or expense . .. resulting from or arising from the negligence of [Phoenix] . . . ." (Id. ¶ 24.) MMC asserts Phoenix procured insurance policies through Citizens, Employers' Fire Insurance Company, and North River Insurance Company to fulfill the subcontract's insurance requirements. (Id. ¶¶ 25, 85.) MMC also alleges it may be third party beneficiary of Citizens and North River's obligations because of the requirement that MMC be named as an additional insured under the Citizens, Employers, and North River policies. (Id. ¶¶ 27, 87.)
Citizens initiated this action on February 10, 2017 when it filed a complaint against defendants Phoenix, Berry, Suffolk, and MMC. In the complaint, Citizens seeks a declaratory judgment that with regard to the underlying suit, Citizens does not have a duty (1) to indemnify Phoenix for any judgment in the underlying lawsuit; (2) to defend or indemnify Berry or Suffolk in the underlying lawsuit; or (3) to indemnify MMC for any judgment it obtains in the underlying lawsuit; or, in the alternative, (4) if it does have a duty indemnify any of the defendants, their recovery is limited to a maximum of one per occurrence policy limit, $1,000,000.
Citizens also brought an additional claim against North River. The court granted Citizens' motion to dismiss the claim without prejudice on July 19, 2017.
MMC filed its answer, counterclaims, and cross-claims on April 10, 2017. In its counterclaim, MMC alleges four counts against Citizens. MMC seeks a (1) declaratory judgment that with regard to the underlying suit, Citizens has a duty to indemnify MMC; and alleges (2) Citizens breached the implied duty of good faith and fair dealing owed to MMC; (3) violated Mass. Gen. Laws ch. 93A, §§ 2, 9; and (4) violated Mass. Gen. Laws ch. 93A, §§ 2, 11. (MMC countercl.¶¶30-47.)
The court granted MMC's motion to extend the deadline to file its response to the complaint until April 10, 2017.
Citizens filed its motion to dismiss on June 22, 2017 MMC opposed the motion on July 20, 2017.
The court granted Citizens request for an extension of the deadline to file its response to the counterclaim.
DISCUSSION
1. Standard of Review
"A motion to dismiss pursuant to M.R. Civ. P. 12(b)(6) tests the legal sufficiency of the [counterclaim!." Seacoast Hangar Condo. II Ass'n v. Martel, 2001 ME 112, ¶ 16, 775 A.2d 1166 (quoting New Orleans Tanker Corp. v. Dep't of Transp., 1999 ME 67, ¶ 3, 728 A.2d 673). When the court reviews a motion to dismiss, "the [counterclaim] is examined 'in the light most favorable to the [counterclaim] plaintiff to determine whether it sets forth elements of a cause of action or alleges facts that would entitle the [counterclaim] plaintiff to relief pursuant to some legal theory.'" Lalonde v. Cent. Me. Med. Or.. 2017 ME 22, ¶ 11, 155 A.3d 426 (quoting Moody v. State Liquor & Lottery Comm'n. 2004 ME 20, ¶ 7, 843 A.2d 43). Allegations in the counterclaim are deemed true, Id., and "dismissal should only occur when it appears beyond doubt that a plaintiff is entitled to no relief under any set of facts that he might prove in support of his claim." Moody, 2004 ME 20, ¶ 7, 843 A.2d 43 (quoting McAfee v. Cole. 637 A.2d 463, 465 (Me. 1994)) (internal quotations omitted).
2. Choice-of-Law
Citizens argues Maine law governs MMC's claims. MMC counters that the court cannot decide what law to apply at this stage in the litigation because the inquiry is too fact intensive. Courts have decided the choice-of-law issue on a motion to dismiss. See Beaulieu v. Beaulieu, 265 A.2d 610, 611 (Me. 1970) (considering and deciding choice-of-law issue raised in a M.R. Civ. P. 12(b)(6)); Flaherty v. Allstate Ins. Co., 2003 ME 72, ¶5 6, 11-22, 822 A.2d 1159 (holding the trial court improperly granted a motion to dismiss, not because it ruled on which jurisdiction's law applied, but because its ruling that Connecticut law applied was wrong because Maine had more significant contacts and relationships).
Maine courts apply Maine's choice-of-law rules to establish "which state's substantive rules apply to the liability questions raised . . ." because "Maine is the forum state." State Farm Mut. Auto. Ins. Co. v. Koshy, 2010 ME 44, ¶ 21, 995 A.2d 651. "Maine has adopted the approach of sections 186 to 188 of the Restatement (Second) of Conflict of Laws (1971), to govern choice of law for contract issues." Id. ¶ 46. Section 188 applies when a contract does not include a choice of law provision. Id. ¶ 47. Section 188 provides as follows:
Parties have not submitted complete copies of the insurance contracts, but appear to agree there is no choice-of-law provision that governs related claims.
(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.
(2) In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
Restatement (Second) Conflict of Laws § 188.
In Baybutt Constr. Corp. v. Commercial Union Ins. Co., decided by the trial court on a motion for summary judgment, the plaintiff sought "a judgment which declared that the provisions of its [comprehensive general liability] insurance contract with the defendant obligated the defendant both to cover and defend the plaintiff in [an underlying suit.]" 455 A.2d 914, 917 (Me. 1983), overruled in part on other grounds by Peerless Ins. Co. v. Brennon, 564 A.2d 383, 386-87 (Me. 1989). The Law Court held Maine law governed the rights and duties of the parties to the insurance contract when the insured construction company was principally based in New Hampshire, the insurer was principally based in Massachusetts, the insurance policy was purchased in New Hampshire through a New Hampshire insurance agency, and the policy covered insured construction projects in Maine, New Hampshire, and Vermont because the "specific insured risk" was located in Maine. Id. at 917, 919. The court explained:
[I]n a casualty insurance contract, as is involved in the instant case, the validity of the contract and the rights and duties created thereby, are to be determined, in the absence of an express effective choice of law by the parties, by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue involved, some other state has a more significant relationship to the transaction and the parties, in which event the local law of the other state will be applied.Id. at 918 (emphasis added).
As in Baybutt, this case includes many parties based out of state. Citizens is a Massachusetts based insurer; Berry, Suffolk, and Phoenix are (or were) all incorporated and principally based in Massachusetts. Although under Baybutt it may be tempting to conclude those contacts are less important than the location of the insured risk in determining which jurisdiction's law should apply, the court agrees with MMC that the court has insufficient facts to determine the choice-of-law issue. See Walker v. Unum Life Ins. Co. of Am., 530 F.Supp.2d 351, 354 (D. Me. 2008); In re: Montreal Maine & Atlantic Railway, Ltd., No. 13-10670, WL 2954537, at *7 (Bankr. D. Me. July 7, 2017); see also Restatement (Second) Conflict of Laws § 188; Koshy, 2010 ME 44, ¶22, 995 A.2d 651.
"[A] defendant in a contract case governed by one state's law nonetheless may be subject to the provisions of another state's unfair trade practices statute[.]" Crellin Techs, v. Equipmentlease Corp.. 18 F.3d 1, 11 (1st Cir. 1994); see also Koshy. 2010 ME 44. ¶¶ 21, 46, 995 A.2d 651 (applying contract and tort choice-of-law rules to separate issues in the same case). Citizens argues there is a conflict between Maine and Massachusetts law as they relate to claims of unfair insurance practices. Under Maine law, only the insured has standing to bring suit against its insurer for unfair insurance settlement practices, see 24-A M.R.S. § 2436-A (2016), whereas under Massachusetts standing is much broader. See Mass. Gen. Laws ch. 93A, §§2, 9, 11.
Courts have held claims pursuant to chapter 93A are either contract or tort based. This determination appears to depend on the allegations made in support of a chapter 93A claim. See Ne. Data Svs. v. McDonnell Douglas Comput. Sys., 986 F.2d 607, 610 (1st Cir. 1993) ("depending on the facts, a Chapter 93A claim may essentially reduce to a contract claim"); Crellin Techs, v. Equipmentlease Corp.. 18 F.3d at 11 ("we treat appellant's chapter 93A initiative as a species of tort claim."). In Ne. Data Sys., the First Circuit held the 93A claims before the court were "embroidered breach of contract' claims" because they were based on the plaintiff's allegations that the defendant acted "with a bad motive" and "knowingly" and "willfully" breached the contract. 986 F.2d at 609. In Crellin Techs., decided by the trial court after a bench trial, the First Circuit held "when a chapter 93A claim and the requested remedy are highly analogous to a tort claim and remedy, the chapter 93A claim should be considered as a tort for choice-of-law purposes." 18 F.3d at 11.
Here, in support of its 93A claims, MMC alleges as follows: (1) Citizens failed to effectuate a prompt, fair, and equitable settlement of the claims in the underlying suit; (2) such failure constitutes unfair or deceptive acts or practices; and (3) the unfair or deceptive acts were willful or knowing violations of chapter 93A. (MMC's Countercl. ¶¶ 39-41, 44-46.) These allegations, as in Ne. Data Sys., are essentially breach of contract claims, 986 F.2d at 609, and under Bay butt, may be governed by Maine law such that Massachusetts claims would be barred. 455 A.2d at 918; see Reicher v. Berkshire Life Ins. Co. of Am.. 360 F.3d 1, 6 (1st Cir. 2004). Plaintiff's motion to dismiss was filed shortly after MMC's answer and counterclaims were filed, however, and the parties continue to engage in discovery. After discovery is completed, the facts may establish MMC's claims sound more in tort. The Baybutt choice-of-law analysis does not govern tort claims. See Koshy. 2010 ME 44, ¶ 21, 995 A.2d 651. On the present record, viewing the facts alleged in the complaint in the light most favorable to MMC, the court has insufficient facts on which to determine whether MMC's chapter 93A claims are barred.
3. Reach and Apply
Citizens avers that Maine's reach and apply statute bars MMC's counterclaims against Citizens. See 24-A M.R.S. § 2904 (2016). MMC counters that its counterclaim is not a reach and apply action thus the statute does not apply.
Maine's reach and apply statute bars civil actions "brought against an insurer to reach and apply . . . insurance money until 20 days shall have elapsed from the time of the rendition of the final judgment against the judgment debtors." 24-A M.R.S. § 2904; see Allen v. Pomroy, 277 A.2d 727, 728 (Me. 1971) (quoting § 2904).
In its counterclaim, MMC does not seek damages; it seeks a declaratory judgment addressing Citizens' duty to indemnify. (MMC's Countercl. ¶¶ 30-33.) In its complaint, Citizens seeks a declaratory judgment that it has no duty to indemnify MMC for any damages established by the underlying suit. (Compl. ¶¶ 46-47.)
MMC does seek damages for an alleged breach of Citizens' implied duty of good faith and alleged violations of MASS. GEN. LAWS ch. 93A. In those claims, MMC does not seek to apply insurance money to satisfy claims in the underlying suit and the claims do not depend on a judgment being entered against Citizens' insured.
In Maine, a determination of whether an insurer has a duty to indemnify is based upon the facts ultimately proved in the underlying claim. Am. Policyholders' Ins. Co. v. Cumberland Cold Storage Co., 373 A.2d 247, 250 (Me. 1977). In limited circumstances, a declaratory judgement action to determine whether the duty exists can be brought before the conclusion of the underlying suit. N. E. Ins. Co. v. Young. 2011 ME 89, ¶ 15, 26 A.3d 794. "[E]arlier consideration of the duties to defend and indemnify [is appropriate] when an insurer disputes those duties based on facts that are not related to the question of the insured's liability, such as 'nonpayment of a premium, cancellation of a policy, failure to cooperate or lack of timely notice.'" Id. (quoting Patrons Oxford Mut. Ins. Co. v. Garcia. 1998 ME 38, ¶ 7, 707 A.2d 384.) "A declaratory judgment action is appropriate in such circumstances because 'the coverage dispute depends entirely on the relationship between the insurer and the insured, not on facts to be determined in the underlying litigation.'" Id. Here, in the counterclaim against Citizens, MMC raises both the issue of ultimate liability and the parties' relationship. The claim may qualify as one of those limited circumstances in which a party may bring a declaratory judgment action prior to the resolution of the underlying case, and the reach and apply statute would not apply to MMC's counterclaim.
4. Third-Party Beneficiary
Citizens argues MMC lacks standing to assert its counterclaims because MMC is not a party to the insurance policy contracts. MMC counters it can enforce the contracts as a third-party beneficiary of the insurance policy contracts.
"Litigants normally may not assert the rights of third parties but must demonstrate that they have received some particularized injury in order to have standing to raise their claim." Stull v. First Am. Title Ins. Co.. 2000 ME 21, ¶ 11, 745 A.2d 975. "Third parties to contracts are strictly limited in their ability to maintain an action under contract law." Id. ¶ 17. "A third party harmed by a breach may only sue for breach of contract if the contracting parties intended that the third party have an enforceable right." Id.
Maine has adopted the Restatement (Second) of Contracts definition of third-party beneficiaries. F. O. Bailey Co. v. Ledgewood. Inc.. 603 A.2d 466, 468 (Me. 1992). Section 302 of the Restatement provides:
(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. (2) An incidental beneficiary is a beneficiary who is not an intended beneficiary. Restatement (Second) of Contracts § 302; see also id. (adopting section 302). "In order to prevail on their third-party beneficiary contract claim, [MMC has] to demonstrate that the promisee, . . . intended to give [MMC] the benefit of the performance." F.O. Bailey Co.. 603 A.2d at 468. The court looks to the contract language and the circumstances surroundings its execution to determine the promisee's intention. Id. "In the absence of contract language, there must be circumstances that indicate with clarity and definiteness that [the promisee] intended to give [a third-party] an enforceable benefit under the contract." Devine v. Roche Biomedical Labs., 659 A.2d 868, 870 (Me. 1995).
The parties have not provided the court with copies of the complete insurance policy contracts. MMC alleges it may be an additional insured of the policies, but does not otherwise allege the policies establish that Phoenix intended for it to have an enforceable benefit under the policies. (MMC's Countercl. ¶ 27.) Rather, MMC's third-party beneficiary claim rests almost entirely upon the circumstances surrounding the execution of the policies. It points to the following allegations in support of its claim:
(1) Phoenix was contractually required to obtain and maintain insurance coverage for its work on the MMC project[;]
(2) Phoenix promised to indemnify MMC from any and all loss, damage, cost, or expense sustained by MMC resulting from or arising from Phoenix's work[;]
(3) Phoenix procured the Citizens policies to satisfy its contractual requirement to obtain and maintain insurance coverage for its work on the MMC project and to indemnify MMC, and Citizens knew of those contractual requirements in issuing the policies[; and]
(4) MMC is also a named insured on the Citizens policies.(MMC Opp'n to Mot. Dismiss. 10 (emphasis in original).) The Law Court has cautioned courts considering the circumstances surrounding the execution of contracts:
In assessing the relevant circumstances, courts must be careful to distinguish between the consequences to a third party of a contract breach and the intent of a promisee to give a third party who might be affected by that contract breach the right to enforce performance under the contract. If consequences become the focus of the analysis, the distinction between an incidental beneficiary and an intended beneficiary becomes obscured. Instead, the focus must be on the nature of the contract itself to determine if the contract necessarily implies an intent on the part of the promisee to give an enforceable benefit to a third party.Devine, 659 A.2d at 870. The contracts are not before the court. If following discovery, MMC can establish it was a named insured or can present other facts that establish the contracting parties' clear and definite intent that it receive enforceable benefits under the policies, MMC could proceed as a third-party beneficiary. In viewing the counterclaim in the light most favorable to MMC, it states a cognizable third-party beneficiary claim. See Moody, 2004 ME 20, ¶ 7, 843 A.2d43.
5. Mass. Gen. Laws ch. 93A, §§ 2, 9
Citizens argues MMC cannot maintain an action against it for violation of Mass. Gen. Laws ch. 176D, § 3 (9) (f) pursuant to Mass. Gen. Laws ch. 93A, § 9 because MMC does not have enforceable rights under the insurance contracts. MMC counters that it has standing because it is a third-party beneficiary.
Chapter 176D, § 3 (9) (f) provides the failure "to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear" is an "unfair or deceptive [act] or [practice] in the business of insurance."
"[Chapter] 93A, § 9 (1), provides that 'any person whose rights are affected by another' party's violation of [Chapter] 176D, § 3 (9), is entitled to bring an action under c. 93A." Clegg v. Butler, 424 Mass. 413, 418, 676 N.E.2d 1134 (1997) (emphasis in original) (quoting Van Dyke v. St. Paul Fire & Marine Ins. Co.. 388 Mass. 671, 675, 448 N.E.2d 357 (1983)). The Massachusetts Supreme Judicial Court reads the provision broadly to entitle "any plaintiff to recover under c. 93A, § 9, if his rights are adversely affected or if he suffers 'injury' because of another party's breach of his statutory duty." Id. '"[I]njury' simply refers to 'the invasion of any legally protected interest of another.'" Id. "The duty of fair dealing in insurance settlement negotiations is established by statute under [chapter] 176D, § 3 (9), and the specific duty contained in subsection (f) is not limited to those situations where the plaintiff enjoys contractual privity with the insurer." Id. at 419. Contrary to the assertions of Citizens, Clegg does not limit standing to bring such claims to insureds and third-party claimants. Id. (holding "[s]tanding does not depend on a party's status as an insured or a third-party claimant.").
Third-party beneficiaries have standing to bring section 9 claims against parties to a contract. MMC alleges it is a third-party beneficiary of the insurance contract. MMC also alleges it may be an additional insured on the insurance contracts. MMC has established standing to proceed on its section 9 counterclaim against Citizens.
6. Mass.Gen.Laws ch. 93A, §§2, 11
Citizens argues MMC failed as a matter of law to allege a cognizable claim for violation of Mass. Gen. Laws ch. 93A §§ 2, 11 because the alleged actions did not occur "primarily and substantially" within Massachusetts. MMC counters that the burden of proof is on Citizens to establish that the actions did not occur "primarily and substantially" within Massachusetts and it is a question of fact not properly decided upon a motion to dismiss.
A party may bring a claim under section 11 only when the "actions and transactions constituting the alleged unfair method of competition or the unfair or deceptive act or practice occurred primarily and substantially within the commonwealth." Mass. Gen. Laws ch. 93A, §11. "[T]he burden of proof shall be upon the person claiming that such transactions and actions did not occur primarily and substantially within the commonwealth." Id. There is no definitive list of factors employed by courts to determine whether or not the actions occurred primarily and substantially within Massachusetts. Kuwaiti Danish Comput. Co. v. Dig. Equip. Corp., 438 Mass. 459, 473, 781 N.E.2d787 (2003). "Any determination necessarily will be fact intensive and unique to each case." Id. at 472-73. "Section 11 suggests an approach in which a judge should, after making findings of fact, and after considering those findings in the context of the entire [section] 11 claim, determine whether the center of gravity of the circumstances that give rise to the claim is primarily and substantially within [Massachusetts]." Id. Because the determination is fact intensive, an assessment of where the actions "primarily and substantially" occurred is not appropriate on the "basis of the allegations of the complaint alone." Resolute Mgmt. Inc. v. Transatlantic Reinsurance Co.. 87 Mass.App.Ct. 296, 300, 29 N.E.3d 197 (2015); see also Fleet Nat'l Bank v. Certain Underwriters at Lloyd's, London, 16 Mass. L. Rep. 212 (2003) (concluding the court had to deny defendant's motion to dismiss because "[t]he Court finds itself between the mandate of the [Massachusetts] S.J.C. to decide the 'primarily and substantially' issue 'after making findings of fact' and the very liberal requirements for notice pleadings at the motion to dismiss stage."). Dismissal of MMC's section 11 claim at this juncture would be premature.
CONCLUSION
There are insufficient facts before the court to determine whether Maine law bars MMC's Mass. Gen. Laws ch. 93A claims. Maine's reach and apply statute does not bar MMC's counterclaims. MMC has alleged a cognizable third-party beneficiary claim. MMC has alleged sufficient facts to demonstrate standing to assert a counterclaim against Citizens for violation of Mass. Gen. Laws ch. 93A, § 9(3). It is premature in this litigation to determine whether Citizens' actions, which allegedly constituted unfair or deceptive practices, occurred primarily and substantially within the Commonwealth of Massachusetts.
The entry is
Plaintiff Citizens Insurance Company of America's Motion to Dismiss Defendant Maine Medical (Center's Counterclaim is DENIED.