Opinion
Civil Action 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 RF/ER INSURANCE COMPANY, Defendants
ORDER ON DEFENDANT NORTH RIVER INSURANCE COMPANY'S MOTION TO DISMISS DEFENDANT MAINE MEDICAL CENTER'S CROSS-CLAIM
Nancy Mills, Justice, Superior Court.
Before the court is cross-claim defendant North River Insurance Company's motion to dismiss defendant Maine Medical Center's cross-claim. For the following reasons, North River's motion to dismiss MMC's cross-claim is denied.
FACTS
The present action stems from an underlying lawsuit brought by MMC 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. (Phoenix) 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 Cross-cl. ¶ 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 contract with MMC. (Compl. 5 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 Cross-cl. ¶ 83.) 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. ¶ 80.) 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. ¶ 84.) MMC asserts Phoenix procured insurance policies through Employers' Fire Insurance Company (EFTC), Citizens Insurance Company of America (Citizens), and North River to fulfill the subcontract insurance requirements. (Id. ¶¶ 25, 85.) Phoenix purchased umbrella liability coverage policies from North River for consecutive year-long periods beginning December 31, 2008 and covering until at least December 31, 2014. (Id.¶ 68.) MMC also alleges it may be an additional insured under all of the policies. (Id. ¶¶ 27, 87.)
North River argues the cross-claim does not point to any provision of the North River umbrella policies that would confer third-party beneficiary status on MMC or reflect an intent to confer such status. (Mot. Dismiss 3.) While MMC does not point to any specific contractual language, MMC alleges in the cross-claim as follows:
The clear and definite intent to make MMC a third-party beneficiary of North River's obligations under the North River policies is also established by, among other things, the requirement that MMC be named as an additional insured under the North River policies and/or that MMC was an additional insured under the policies.(MMC's Cross-cl. ¶ 87.
Citizens initiated this action on February 10, 2017 when it filed a complaint against defendants Phoenix, Berry, Suffolk, MMC, and North River. On March 29, 2017, Citizens moved to dismiss its claims against North River. On July 19, 2017, the court granted the motion. Prior to dismissal of those claims, on April 10, 2017, MMC filed a cross-claim against North River.MMC's cross-claim seeks a judgment declaring North River has a duty to indemnify MMC for any damages for which Phoenix is found liable in the underlying suit in excess of the EFIC and Citizens commercial general liability policies' coverage limits or, in the alternative, if the EFIC and Citizens policies do not provide coverage, that North River has a duty to indemnify MMC for all of the damages for which Phoenix is found liable up to the policy limits.
The court granted MMC's motion to extend the deadline to file its response to the complaint to April 10, 2017.
On May 19, 2017, North River filed its motion to dismiss MMC's cross-claim. MMC opposed the motion on June 9, 2017. North River filed a reply on June 16, 2017.
DISCUSSION
1. Standard of Review
"A motion to dismiss pursuant to M.R. Civ. P. 12(b)(6) tests the legal sufficiency of the [cross-claim]." 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 [cross-claim] is examined 'in the light most favorable to the [cross-claim] plaintiff to determine whether it sets forth elements of a cause of action or alleges facts that would entitle the [cross-claim] plaintiff to relief pursuant to some legal theory.'" Lalonde v. Cent. Me. Med. Ctr., 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 cross-claim 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. Reach and Apply
North River argues the Maine and Massachusetts reach and apply statutes bar MMC from bringing a direct action against North River absent the entry of final judgment against its insured in the underlying case. See 24-A M.R.S. § 2904 (2016); Mass. Gen. Laws ch. 175, § 113 (2016); Mass. Gen. Laws ch. 214, § 3(9) (2016). MMC counters that because its cross-claim is not a reach and apply action, the statutes are not applicable.
The parties do not argue which jurisdiction's substantive law applies to the cross-claim.
§ 2904 provides in relevant part:
Whenever any person . . . recovers a final judgment against any other person for any loss or damage specified in section 2903, the judgment creditor shall be entitled to have the insurance money applied to the satisfaction of the judgment by bringing a civil action, in his own name, against the insurer to reach and apply the insurance money, if when the right of action accrued, the judgment debtor was insured against such liability and if before the recovery of the judgment the insurer had had notice of such accident, injury or damage. No civil action shall be brought against an insurer to reach and apply such insurance money until 20 days shall have elapsed from the time of the rendition of the final judgment against the judgment debtors.
§ 113 provides:
Upon the recovery of a final judgment against any person by any person, including executors or administrators, for any loss or damage specified in the preceding section, if the judgment debtor was at the accrual of the cause of action insured against liability therefor, the judgment creditor shall be entitled to have the insurance money applied to the satisfaction of the judgment as provided in the ninth clause of section three of chapter two hundred and fourteen.
§ 3(9) provides:
The supreme judicial and superior courts shall have original and concurrent jurisdiction of the following cases:
(9) Actions to reach and apply the obligation of an insurance company to a judgment debtor under a motor vehicle liability policy, as defined in section thirty-four A of chapter ninety, or under any other policy insuring a judgment debtor against liability for loss or damage on account of bodily injury or death or for loss or damage resulting therefrom, or on account of damage to property, in satisfaction of a judgment covered by such policy, which has not been satisfied within thirty days after the date when it was rendered.
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." Allen v. Pomroy, 277 A.2d 727, 728 (Me. 1971) (quoting § 2904). Massachusetts' reach and apply "statutes affording a remedy for an injured plaintiff against an insurer issuing a liability policy require as a prerequisite to suit 'the recovery of a final judgment' against the insured wrongdoer." Rogan v. Liberty Mut. Ins. Co., 305 Mass. 186, 188, 25 N.E.2d 188, 189 (1940) (citing ch. 175, §§ 112, 113; ch. 214, § 3).
In its cross-claim, MMC does not seek damages; it seeks a declaratory judgment addressing North River's duty to indemnify. (MMC Cross-cl. 55 88-91.) Reach and apply statutes do not bar declaratory judgment actions. See Dorchester Mut. Ins. Co. v. Legeyt, 25 Mass. L. Rep. 262 * 18 (Mass. Super. Ct. 2008). In Legeyt, the Massachusetts Superior Court found before there is a final judgment against the insured, "an injured party may seek declaratory relief against another's insurer [because] an injured party's interest in the tortfeasor's insurance policy is sufficiently present or immediate, once the injury has been sustained, to allow the injured party to seek declaratory relief." Id. * 14-16. The court distinguished the declaratory judgment action from a reach and apply action in a footnote. Id. * 14 n.8 (stating "It is clear that, in the absence of a final judgment against [the insured], [the injured party] has no right to reach and apply the Policy under [chapter] 214, §3(9).")
In Maine, a determination of whether an insurer has a duty to indemnify is based upon the facts ultimately proven 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 an 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 cross-claim against North River, MMC raises the issue of ultimate liability and the parties' relationship. Thus, the claim qualifies as one of those limited circumstances where a party may bring a declaratory judgment action prior to the resolution of the underlying case, and the reach and apply statutes do not apply to MMC's cross-claim.
3. Third-Party Beneficiary
North River argues MMC lacks standing to litigate the duty to indemnify because MMC is not a party to the insurance policy contracts. MMC counters it can enforce the insurance contracts because it is a third-party beneficiary of policies.
"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." hi ¶ 17; see also Miller v. Mooney, 431 Mass. 57, 62, 725 N.E.2d 545, 549-50 (2000). "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." Stall, 2000 ME 21, ¶ 17, 745 A.2d 975; see Spinner v. Nutt, 417 Mass. 549, 555, 631 N.E.2d 542, 546 (1994).
Maine and Massachusetts have adopted the Restatement (Second) of Contracts definition of third-party beneficiaries. F. 0. Bailey Co. v. Ledgewood, Inc., 603 A.2d 466, 468 (Me. 1992); Rae v. Air-Speed, Inc., 386 Mass. 187, 195, 435 N.E.2d 628, 632 (1982). 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 F. O. Bailey, 603 A.2d at 468 (adopting section 302); Rae, 386 Mass. at 195, 435 N.E.2d at 632 (holding "We now adopt the rule set forth in the Restatement (Second) of Contracts § 302, with regard to both creditor and other types of intended beneficiaries.").
Pursuant to Maine law, "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, 603 A.2d at 468. Maine courts 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). Similarly, "[u]nder Massachusetts law, a contract does not confer third-party beneficiary status unless the 'language and circumstances of the contract' show that the parties to the contract 'clear[ly] and definitely]' intended the beneficiary to benefit from the promised performance." Cumis Ins. Soc'y, Inc. v. BJ's Wholesale Club. Inc., 455 Mass. 458, 466, 918 N.E.2d 36, 44 (2009) (quoting Anderson v. Fox Hill Village Homeowners Corp., 424 Mass. 365, 366-67, 676 N.E.2d 821, 822 (1997).
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's intended for MMC to have an enforceable benefit under the policies. (MMC Cross-cl. ¶ 87.) 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 North River policies to satisfy its contractual requirement to obtain and maintain insurance coverage for its work on the MMC project and to indemnify MMC, and North River knew of those contractual requirements in issuing the policies [; and]
(4) MMC is also a named insured on the North River policies.(MMC Opp'n to Mot. Dismiss. 8 (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 MMC can establish is was a named insured or after discovery can present other facts that establish a clear and definite intent that it receive enforceable benefits under the policies. MMC could proceed as a third-party beneficiary. In viewing the cross-claim in the light most favorable to MMC, it states a cognizable third-party beneficiary claim. See Moody, 2004 ME 20, ¶ 7, 843 A.2d 43. Dismissal for lack of standing is not appropriate at this stage.
In the cross-claim, MMC does not expressly allege that North River knew of the contractual requirements. Viewing the cross-claim in the light most favorable to MMC, however, such knowledge may be inferred from the allegation that MMC was an additional insured of the policies. (See MMC's Cross-cl. ¶ 87.)
CONCLUSION
Maine and Massachusetts' reach and apply statutes do not bar MMC's declaratory judgment cross-claim against North River. MMC has alleged a cognizable third-party beneficiary claim.
The entry is
Defendant North River's Motion to Dismiss Defendant Maine Medical Center's Cross-claim is DENIED.