Summary
rejecting insured's argument that reservation-of-rights letter was insufficient to put insurer on notice because it "neither definitively refused to provide a defense nor specifically denied coverage for any indemnity claim, but merely indicated that it would provide a defense under a reservation of rights" and finding that the letter triggered the one-year peremptive period
Summary of this case from Walton v. E S & H, Inc.Opinion
Civil Action No. 01-645, Section "N"
May 30, 2001
ORDER AND REASONS
Before the Court is Plaintiff Ruth U. Fertel, Inc.'s Motion to Remand. For the following reasons, the Motion is DENIED.
A. BACKGROUND
In March of 1999, Daniel Earles filed suit against his former employer, Plaintiff Ruth U. Fertel, Inc. ("RUFI"), in this Court. See Civ. Action No. 99-866 Sec. N. The Earles case was tried to a jury early in 2000 and resulted in a jury verdict and settlement.
The instant matter concerns who should have been responsible for paying the costs of RUFI's defense in the Earles case. In a suit filed in Louisiana state court on January 4, 2001, RUFI claims that Executive Risk Specialty Insurance Company and Executive Risk Management Association (collectively, "Executive Risk") should have provided it with indemnity and a defense pursuant the terms of a corporate liability insurance policy. RUFI alleges that it procured the Executive Risk policy through an insurance agent, Marsh USA, Inc. ("Marsh") on December 14, 1998. If the policy is found not to cover RUFI's Earles-related expenses, RUFI claims in the alternative that Marsh should be held liable for violating its duty to procure proper coverage.
RUFI's claims against Marsh are at issue in the present motion. On March 12, 2001, Executive Risk removed RUFI's coverage suit to this Court on the basis of diversity jurisdiction, arguing that RUFI fraudulently joined Marsh, a Louisiana corporation, to defeat diversity jurisdiction. RUFI moves to remand its coverage suit to state court, arguing that Marsh is a proper defendant.
B. LAW AND ANALYSIS
A defendant generally may remove a civil action brought in state court to a federal district court which would have had original jurisdiction over the controversy. See 28 U.S.C. § 1441. "[W]hen faced with a motion to remand, it is the defendant's burden to establish the existence of federal jurisdiction over the controversy." Winters v. Diamond Shamrock Chem. Co., 149 F.3d 387, 397 (5th Cir. 1998), cert. denied, 526 U.S. 1034, 119 S.Ct. 1286, 143 L.Ed.2d 378 (1999). Thus, where removal depends on a finding of fraudulent joinder, "the burden of persuasion is on the one who cries fraudulent joinder." Delgado v. Shell Oil Co., 231 F.3d 165, 178 (5th Cir. 2000).
To establish fraudulent joinder, Executive Risk must show that there is no reasonable probability that RUFI can recover against Marsh or that there has been outright fraud in the pleadings of jurisdictional facts. See id. at 179. The Court must "evaluate all of the factual allegations in (RUFI]'s state court pleadings in the light most favorable to [RUFI], resolving all contested issues of substantive fact in [its] favor" and "examine relevant state law and resolve all uncertainties in [RUFI's] favor". Rodriguez v. Sabatino, 120 F.3d 589, 591 (5th Cir. 1997) (quotingGreen v. Amerada Hess Corp., 707 F.2d 201, 205-06 (5th Cir. 1983)), cert. denied, 523 U.S. 1072, 118 S.Ct. 1511, 140 L.Ed.2d 665 (1998). In addition to determining whether RUFI has stated a viable claim against Marsh, the court may consider any affirmative defenses that could be raised to defeat that claim. "Should [Marsh] prevail on any of these defenses, it necessarily follows that joinder was fraudulent" and removal proper. Sid Richardson Carbon Gasoline Co. v. Interenergy Res., Ltd., 99 F.3d 746, 753 (5th Cir. 1996). "On the other hand, if there is any possibility that [RUFI] might survive the affirmative defenses," the court must remand.
RUFI argues that Marsh alone should be allowed to argue that RUFI cannot recover against it. RUFI cites no authority for this argument, and its logic is not especially compelling.
Executive Risk argues that RUFI cannot recover against Marsh for two reasons. First, Executive Risk contends that RUFI has failed to allege sufficient facts to support its claim against Marsh. Specifically, Executive Risk argues that RUFI has failed to allege facts that would satisfy the second and third elements of the cause of action set forth inTaylor v. Sider, 765 So.2d 416 (La.App. 4th Cir. 2000). Second, Executive Risk contends that RUFI's claims against Marsh have prescribed. Because RUFI was first made aware that Executive Risk contested coverage by way of a June 4, 1999 reservation of rights letter, Executive Risk argues that RUFI's claims against Marsh, filed on January 4, 2001, have prescribed pursuant to Louisiana Revised Statute 9:5606(A). That statute provides:
In Taylor, the Court stated:
The client may recover from the agent the loss he sustains as a result of the agent's failure to procure the desired coverage if the actions of the agent warranted an assumption by the client that he was properly insured in the amount of the desired coverage. To recover for losses resulting from such failure, the plaintiff must establish: 1) an undertaking or agreement by the insurance agent to procure insurance; 2) failure of the agent to use reasonable diligence to obtain insurance and to notify the client promptly of the absence of coverage; and 3) actions by the agent which warranted the client's assumption that he was insured in the amount of the desired coverage.
65 So.2d at 418 (citations omitted).
No action for damages against any insurance agent, broker, solicitor, or other similar licensee under this state, whether based upon tort, or breach of contract, or otherwise, arising out of an engagement to provide insurance services shall be brought unless filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered. However, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect.
The Court tends to agree with RUFI that it has satisfied its notice pleading duties with respect to its claims against Marsh. Regardless, the Court finds it unnecessary to resolve that issue definitively, for it agrees with Executive Risk that RUFI's claims against Marsh have been extinguished by peremption.
La. R.S. 9:5606(D) provides that "[t]he one-year and three-year periods of limitation provided in Subsection A of this Section are peremptive periods within the meaning of Civil Code Article 3458 and, in accordance with Civil Code Article 3461, may not be renounced, interrupted, or suspended." Peremption is a the prescription. LA. Civ. CODE art. 3458 provides: "Peremption is a period of time fixed by law for the existence of a right. Unless timely exercised, the right is extinguished upon the expiration of the peremptive period."
RUFI argues against this conclusion. In RUFI's view, its "claim against Marsh USA is based upon Marsh USA's breach of its obligation under contract to procure a policy that afforded adequate coverage although it knew of RUFI's needs", and, therefore, is "governed by a ten year prescriptive period rather than a one-year [period] as suggested by the Defendants." Remand Mem. pp. 7-8. Although RUFI does not cite any authority for this proposition, its argument appears to be based on Louisiana Civil Code article 3499, which provides a liberative prescription period often years for personal actions. However, by its own terms, article 3499 is subject to preemptive legislation, such as LA. R.S. 9:5606(A). See LA. Civ. CODE art. 3499 ("Unless otherwise provided by legislation, a personal action is subject to a liberative prescription often years.").
RUFI's claims against Marsh facially appear to constitute an "action for damages against [an] insurance agent [or] broker" within the meaning of LA. R.S. 9:5606(A). See Petition ¶ 2 (characterizing Marsh as RUFI's "insurance agent"); Remand Mem. p. 2 (same) p. 7 (citing Taylor v. Sider). See also LA. R.S. 22:1112(2) ("`Insurance agent' shall mean a person authorized to solicit applications for a policy of insurance or to negotiate a policy of insurance on behalf of an insurer. . . ."); LA. R.S. 22:1112(3) ("`Insurance broker' shall mean any person who, for compensation, acts or aids in any manner in negotiating contracts for insurance or placing risks or effecting insurance for a party other than himself or itself. . . ."). Moreover, because LA. R.S. 9:5606(A) applies to claims "based upon tort, or breach of contract, or otherwise," it would seem to preempt LA. Civ. CODE art. 3499 with respect to claims against insurance agents and brokers. Consistent with this Court's view, in Huffman v. Goodman, No. 34, 361-CA, 2001 WL 322713 (La.App. 2d Cir. April 4, 2001), the Louisiana Second Circuit Court of Appeal recently affirmed exceptions of peremption under LA. R.S. 9:5606(A) in favor of an insurance broker who had been sued for allegedly failing to procure requested insurance. See also Alliance Gen. Ins. Co. v. Louisiana Sheriff's Auto. Risk Program, 52 F. Supp.2d 711 (ED. La. 1999) (Porteous, J.) (applying LA. R.S. 9:5606(A) to third-party claims against insurance agents and brokers who procured policies for third-party plaintiff); Roger v. J. Dufrene, 613 So.2d 947, 949-50 (La. 1993) (noting that LA. R.S. 9:5606 will apply to claims for damages against insurance agents for failing to provide requested insurance coverage arising after statute's effective date).
In a reply memorandum, RUFI argues that, even if LA. R.S. 9:5606(A) does apply, the peremptive period began to run in February 2000 when Executive Risk denied RUFI's claim for indemnity, RUFI contends that no "wrong" occurred on June 4, 1999 because Executive Risk neither definitively refused to provide a defense nor specifically denied coverage for any indemnity claim, but merely indicated that it would provide a defense under a reservation of rights. Even if Executive Risk committed a wrong on June 4, 1999, RUFI argues, there are "no allegations made against Marsh USA in connection with" the reservation of rights letter. Reply Mem. p. 5. Moreover, the letter was addressed to Marsh, not RUFI.
The Court finds this line of argument unpersuasive. First, although addressed to RUFI, Executive Risk's June 4, 1999 letter was copied to RUFI's in-house Risk Manager and outside counsel, and incontrovertible evidence shows that RUFI's outside counsel received the letter shortly after it was sent. Second, in Huffman v. Goodman, cited above, the Louisiana Second Circuit Court of Appeal rejected an argument similar to RUFI's. According to the court, a letter indicating a coverage dispute may establish a party's knowledge of the alleged wrongful act by an insurance agent. Where such a letter demonstrates notice, the dated of a subsequent denial of a claim for indemnity is irrelevant:
The legislature did not make exception for claims of indemnification and we decline to create such an exception. We are cognizant of the fact that a party may not be able to quantify its indemnification claim until judgment is rendered against it. This however, does not preclude the party's assertion of that claim prior to being cast in judgment.
2001 WL 322713 at *8 (emphasis in original). The Huffman court distinguished Clayborn Timber Co., Inc. v. Butler Insurance and Real Estate, Inc., 690 So.2d 940 (La.App. 2d cir 1997), in which the peremptive period began running on the date the claim for indemnity was denied, on the grounds that the claim denial provided the only evidence in Clayborn as to when the plaintiff had or should have had notice of the insurance agent's allegedly tortious conduct. See 2001 WL 322713 at *9. In other words, in Clayton, unlike in Huffman and the instant case, there was no letter demonstrating earlier notice.
Although it is true that the operative letter in Huffman was sent by the insurance agent himself, the Court sees no reason to treat the situation here differently, since the reservation of rights letter from Executive Risk "greatly facilitated" RUFI's "discovery" of Marsh's "alleged wrongful act." Huffman, 2001 WL 322713 at *9. Indeed, the letter at issue here is comprised of nearly six, full, single-spaced pages, which extensively cite various provisions of the disputed policy and explain Executive Risk's reasons for reserving its rights. These reasons include (I) an assertion that the policy in question "has not been issued" and (2) several assertions that the Earles claims fall within various policy exclusions. This letter should have put RUFI on notice that Marsh might not have properly secured the desired coverage. See Yates v. Southwestern Life Ins. Co., Civ. A. No. 97-3204, 1998 WL61033, *5 (E.D. La. Feb. 12, 1998) (Vance, J.) ("the prescriptive term begins when the injured party obtains either actual or constructive knowledge of facts that would reasonably indicate that the individual is a tort victim").
C. CONCLUSION
For the reasons set forth above, the Court finds that Executive Risk has met its burden of showing that RUFI cannot recover against Marsh and, therefore, that Marsh was improperly joined. Accordingly,
IT IS ORDERED that Plaintiff Ruth U. Fertel, Inc.'s Motion to Remand is DENIED.