Opinion
No. CV-05-2729-PHX-DGC.
August 22, 2006
ORDER
Defendant St. Paul Fire and Marine Insurance Company has filed a motion for summary judgment. Doc. #33. Plaintiff has filed a response and Defendant has filed a reply. Docs. ##48, 52. For the reasons set forth below, the Court will grant the motion.
I. Background.
On May 11, 2004, Plaintiff and Defendant Top Flite Construction ("Top Flite") entered into a Long Term Equipment Rental Agreement ("Agreement") for Top Flite's rental from Plaintiff of a Lorain Boom Crane ("Crane"). The Agreement required Top Flite to obtain insurance covering the value of the Crane against any loss or damage during the rental period. Top Flite provided Plaintiff with a Certificate of Liability Insurance ("Certificate") that listed Plaintiff as an additional named insured on a Contractor's Equipment Protection Insurance Policy ("Policy") issued to Top Flite by Defendant St. Paul Fire and Marine Insurance Company ("St. Paul"). The Policy provided that St. Paul had the option of repairing or replacing any damaged property. On May 20, 2004, the boom section of the Crane was damaged.
Plaintiff commenced this action by filing a complaint in state court on August 9, 2005. St. Paul removed the case to this Court on September 7, 2005. Docs. ##1-2. Plaintiff filed an amended complaint on February 27, 2006. Doc. #25. The amended complaint asserts breach of contract claims against both St. Paul and Top Flite, a negligence claim against Top Flite, and a declaratory judgment claim seeking a declaration that the Federal Occupational Safety and Health Administration ("OSHA") regulations governing the operation of cranes and derricks, 29 C.F.R. § 1926.550, require that the boom of the Crane be replaced rather than repaired. Id.
II. Summary Judgment Standard.
Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, "show[s] that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). "Only disputes over facts that might affect the outcome of the suit . . . will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The disputed evidence must be "such that a reasonable jury could return a verdict for the nonmoving party." Id. Summary judgment may be entered against a party who "fails 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, 477 U.S. at 322.
III. Discussion.
A. Plaintiff's Breach of Contract Claim Against St. Paul.
Plaintiff alleges in the amended complaint that "St. Paul's actions breached the terms of the [Policy], to whom [Plaintiff] is a named insured." Doc. #25 ¶ 20. St. Paul argues that Plaintiff lacks standing to sue St. Paul because privity of contract must exist in order for a contract claim to be actionable, and privity is lacking in this case because Plaintiff was not a named insured on the Policy. Docs. ##33 at 3-4, 34 Ex. A. Plaintiff does not dispute that it was not a named insured on the Policy on the date the Crane was damaged. See Doc. #49. Rather, Plaintiff contends that St. Paul should be estopped from denying coverage to Plaintiff because the Certificate stated that Plaintiff was an additional insured on the Policy and Plaintiff reasonably and detrimentally relied on the Certificate. Doc. #48 at 12-14. Plaintiff concludes that summary judgment is inappropriate because it "has put forth the necessary facts to establish an estoppel claim[.]" Id. at 14.
The parties' arguments and pleadings require the Court to address three issues: (1) whether Plaintiff's breach of contract claim fails for lack of privity, (2) whether Plaintiff may pursue a claim based on promissory estoppel, and (3) whether Plaintiff can pursue a claim for bad faith. The Court will address each of these issues separately.
1. Privity.
"`Privity is that connection or relationship which exists between two or more contracting parties.' It arises from the mere fact of entering into a contract. Generally, privity of contract must exist before one may seek to enforce or defeat the contract." Samsel v. Allstate Ins. Co., 19 P.3d 621, ¶ 14 (Ariz.Ct.App. 2001), vacated on other grounds by Samsel v. Allstate Ins. Co., 59 P.3d 281 (Ariz. 2002) (citation omitted); see Hayden Bus. Ctr. Condos. Ass'n v. Pegasus Dev. Corp., 105 P.3d 157, ¶ 19 (Ariz.Ct.App. 2005) ("Time after time, . . . Arizona courts have insisted on privity for breach of contract claims.").
In this case, it is undisputed that there was no privity of contract between Plaintiff and St. Paul during the relevant time period. Top Flite and St. Paul entered into the Policy on July 7, 2003. Doc. #34 ¶ 1. Plaintiff was not named as an additional insured on the Policy until July 1, 2004, more than one month after the Crane was damaged. Doc. #34 ¶ 12.
The naming of Plaintiff as an additional insured on the Certificate did not create privity of contract between Plaintiff and St. Paul because a certificate of insurance only provides information regarding a policy's contents and does not constitute a contract of insurance. See Cont'l Cas. Co. v. Signal Ins. Co., 580 P.2d 372, 376 (Ariz.Ct.App. 1978) (holding that the State of Arizona was not insured under an insurance policy despite a certificate of insurance indicating otherwise because a certificate "cannot contradict the terms of a policy; it only provides information as to the policy's contents"); SLA Prop. Mgmt. v. Angelina Cas. Co., 856 F.2d 69, 73 (8th Cir. 1988) ("The law governing this issue is clear. `The certificate is not part of the contract of, or necessary to, the insurance. It served merely as evidence of the insurance[.]'") (quoting Boseman v. Conn. Gen. Life Ins., 301 U.S. 196, 203 (1937)) (alterations omitted). Moreover, the Certificate in this case explicitly provides that it was "issued as a matter of information only" and "[did] not amend, extend or alter the coverage afforded by the [Policy]." Docs. ##34 Ex. C, 49 Ex. 5. "[W]hen a certificate of insurance contains language stating that the certificate does not amend, extend, or alter the terms of any insurance policy mentioned in the certificate, the terms of the certificate are subordinate to the terms of the insurance policy. The certificate of insurance will not suffice to create insurance coverage if such coverage is precluded by the terms of the policy." TIG Ins. Co. v. Sedgwick James of Wash., 184 F. Supp. 2d 591, 597 (S.D. Tex. 2001).
The Court will grant St. Paul's motion for summary judgment with respect to the breach of contract claim because there was no privity of contract between Plaintiff and St. Paul on the date the Crane was damaged. See Hayden, 105 P.3d ¶ 24 ("[W]e uphold the privity requirement in commercial cases and affirm the trial court's grant of summary judgment to Pegasus."); Stratton v. Inspiration Consol. Copper Co., 683 P.2d 327, 329-30 (Ariz.Ct.App. 1984) ("Since there was no privity of contract between appellant and Inspiration, appellant has no claim for a personal judgment sounding in breach of contract."); see also Contempo Constr., 736 P.2d at 16 (affirming summary judgment in favor of the defendant on a breach of contract claim and holding that the plaintiff failed to raise the issue of promissory estoppel where the complaint alleged no facts amounting to detrimental reliance); Johnson Int'l, 967 P.2d at ¶ 50 (same).
2. Promissory Estoppel.
"The elements of promissory estoppel are a promise, which the promissor should reasonably foresee would cause the promisee to rely, upon which the promisee actually relies to his detriment." Contempo Constr. Co. v. Mountain States Tel. Tel. Co., 736 P.2d 13, 16 (Ariz.Ct.App. 1987). "A promissory estoppel claim is not the same as a contract claim. Promissory estoppel provides an equitable remedy and is not a theory of contract liability." Double AA Builders, Ltd. v. Grand State Constr., L.L.C., 114 P.3d 835, ¶ 45 (Ariz.Ct.App. 2005) (citations omitted); see Johnson Int'l, Inc. v. City of Phoenix, 967 P.2d 607, ¶ 49 (Ariz.Ct.App. 1998) ("Promissory estoppel is not a theory of contract liability, but instead a replacement for a contract when parties are unable to reach a mutual agreement."); AROK Constr. Co. v. Indian Constr. Servs., 848 P.2d 870, 878-79 (Ariz.Ct.App. 1993) (holding that promissory estoppel was a proper claim for relief as an alternative to a contract claim and stating that damages for promissory estoppel may be more limited than damages for breach of contract); see also Chewning v. Palmer, 650 P.2d 438, 440 (Ariz. 1982) (distinguishing equitable estoppel claim from breach of contract claim); Kordsiemon v. Christianson, 735 P.2d 827, 829 (Ariz.Ct.App. 1986) (holding that the doctrine of res judicata did not apply because a promissory estoppel claim is not the same as a breach of contract claim).
In this case, Plaintiff has not alleged a promissory estoppel claim against St. Paul. See Doc. #25 (alleging breach of contract, negligence, and declaratory judgment claims). Plaintiff does allege that "Top Flite was . . . required to provide a Certificate of Liability Insurance naming [Plaintiff] as an additional insured" and that "[t]he Certificate provided that St. Paul was the primary insurer[.]" Id. ¶ 9. Even under a notice pleading standard, these allegations cannot reasonably be construed as alleging detrimental reliance by Plaintiff, an essential element of a promissory estoppel claim. See Contempo Constr., 736 P.2d at 16; Leal v. Allstate Ins. Co., 17 P.3d 95, ¶ 23 (Ariz.Ct.App. 2000) ("The Leals . . . assert claims of promissory estoppel and detrimental reliance, but they do not allege that they actually relied to their detriment on a promise by Allstate. . . . The Leals have not alleged any substantial detriment and, thus, these claims fail."); see also Associated Gen. Contractors of Cal. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983) (stating that a court may not assume that the plaintiff can prove facts different from those alleged in the complaint); Jack Russell Terrier Network of N. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027, 1035 (9th Cir. 2005) (same). Because Plaintiff's complaint does not assert a claim against St. Paul for promissory estoppel, Plaintiff cannot rely on such a claim to defeat summary judgment.
Under Arizona law, a promissory estoppel claim must be specifically pled. See Johnson Int'l, 967 P.2d at ¶ 49 ("Although Arizona is a notice pleading state, claims of promises for purposes of promissory estoppel must be specifically plead."); Contempo Constr., 736 P.2d at 16 ("The general rule is that estoppel must be specifically pleaded or else it is waived."). The Court need not decide whether a heightened pleading standard applies in this case because Plaintiff has not sufficiently pled a promissory estoppel claim even under the more liberal notice pleading standard.
3. Bad Faith.
Finally, Plaintiff's prayer for relief seeks a judgment against Defendants "in an amount to be determined by jury for refusing to comply with federal law in bad faith." Doc. #25 at 6, ¶ 4. To the extent Plaintiff has asserted a bad faith insurance claim against St. Paul, the claim is barred because "[a]n insurance company's duty of good faith and fair dealing exists only between the insurer and its insured. An insurance company owes no duty of good faith to a third-party claimant." Smith v. Allstate Ins. Co., 202 F. Supp. 2d 1061, 1065 (D. Ariz. 2002); see Leal, 17 P.3d ¶ 21 ("[I]t is well established that a third-party claimant, a stranger to the contract, cannot sue the insurer for tortious breach of the duty of good faith.").
B. Plaintiff's Declaratory Judgment Claim Against St. Paul.
Plaintiff seeks a declaration that the OSHA regulations obligate Defendants to replace, rather than repair, the boom of the Crane. Doc. #25 ¶¶ 27-29. Plaintiff contends that the OSHA regulations apply to the Policy because Arizona has explicitly adopted the regulations, and contracts of insurance must be read in light of all controlling state statutes. Doc. #48 at 2-5. St. Paul argues that Plaintiff lacks standing to pursue any of its claims against St. Paul because Plaintiff was not a named insured on the Policy when the Crane was damaged. Doc. #33 at 5.
St. Paul's standing argument focuses on Plaintiff's breach of contract claim. Neither St. Paul nor Plaintiff addresses the specific issue of whether Plaintiff has standing to bring a declaratory judgment claim against St. Paul. Because standing is a jurisdictional prerequisite, the Court will address the issue sua sponte. See RK Ventures, Inc. v. City of Seattle, 307 F.3d 1045, 1056 (9th Cir. 2002) ("We raise this standing issue sua sponte, as the law requires."); Bernhardt v. County of L.A., 279 F.3d 862, 868 (9th Cir. 2002) ("The district court had both the power and the duty to raise the adequacy of Bernhardt's standing sua sponte.").
Plaintiff brought its declaratory judgment claim pursuant to Arizona's Declaratory Judgments Act, A.R.S. § 12-1831. Because this action has been removed to federal court, however, Plaintiff's state law claim must be converted to a claim brought under the Federal Declaratory Judgment Act ("Act"), 28 U.S.C. § 2201. See Inst. for Studies Abroad, Inc. v. Int'l Studies Abroad, Inc., 263 F. Supp. 2d 1154, 1156 (S.D. Ind. 2001) ("The federal, rather than the state, Declaratory Judgment Act controls this litigation, despite the fact that this litigation was brought pursuant to [an] Indiana statute[.]"); Little Giant Mfg. Co. v. Chromalox Indus. Heating Prods., No. 1:96-CV-44, 1996 WL 363026, at *3 (E.D. Tex. June 26, 1996) ("When a declaratory judgment action filed in state court is removed to federal court, that action is in effect converted into one brought pursuant to the federal Declaratory Judgment Act[.]"); Hinkle Excavation Constr. v. Constr. Equip. Int'l, Ltd., No. C00-4090, 2000 WL 33915812, at *2 (N.D. Iowa Nov. 20, 2000) (same); Herbalife Int'l, Inc. v. St. Paul Fire Marine Ins. Co., No. Civ.A. 5:05CV41, 2006 WL 839515, at *3 (N.D.W. Va. Mar. 30, 2006) (same). This is so because under the Erie doctrine, federal courts sitting in diversity apply state substantive law and federal procedural law, and the Act is a procedural statute. See id.; Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); West Publ'g Co. v. McColgan, 138 F.2d 320, 324 (9th Cir. 1943) ("The Federal Declaratory Judgment Act was not a jurisdiction-conferring statute, but an act to establish a new procedure in the federal courts. . . . `Thus, the operation of the Declaratory Judgment Act is procedural only.'") (citing Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937)); see also Fischer Porter Co. v. Moorco Int'l, Inc., 869 F. Supp. 323, 326 (E.D. Pa. 1994) ("Case law indicates that the Act is procedural in nature, and therefore federal law, not state law, governs whether claims may be heard under it.") (citation omitted); Carlson Holdings, Inc. v. NAFCO Ins. Co., 205 F. Supp. 2d 1069, 1074 (D. Minn. 2001) ("[D]eclaratory judgment acts are procedural rules and, thus, in a diversity case, the Federal Declaratory Judgment Act should apply.") (citing Skelly Oil Co. v. Phillips Petro. Co., 339 U.S. 667, 671 (1950)).
The Act provides that "[i]n a case of actual controversy within its jurisdiction, . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration[.]" 28 U.S.C. § 2201(a) (emphasis added). Thus, by its very terms, the Act incorporates Article III's mandate that federal courts may exercise jurisdiction only over an actual case or controversy. See U.S. Const. art. III, § 2; Aetna Life Ins. Co., 300 U.S. at 240 ("The Declaratory Judgment Act of 1934, in its limitation to `cases of actual controversy,' manifestly has regard to the constitutional provision and is operative only in respect to controversies which are such in the constitutional sense."); Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1222 (9th Cir. 1998) ("A lawsuit seeking federal declaratory relief must first present an actual case or controversy within the meaning of Article III, section 2 of the United States Constitution."); see also Fischer Porter Co., 869 F. Supp. at 326 ("The Act incorporates Article II's requirement that federal courts only entertain cases and controversies."); Standard Fire Ins. Co. v. Sassin, 894 F. Supp. 1023, 1026 (N.D. Tex. 1995) ("The Declaratory Judgment Act does not exempt federal district courts from the constitutional requirements that there be an actual controversy between the parties.").
In determining whether an actual controversy exists under the Act, the question is whether the facts show that "there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Golden v. Zwickler, 394 U.S. 103, 108 (1969) (quoting Md. Cas. Co. v. Pac. Coal Oil Co., 312 U.S. 270, 273 (1941)). Here, Plaintiff and St. Paul have no present adverse legal interests. There was no privity of contract between Plaintiff and St. Paul on the date the Crane was damaged, and Plaintiff concedes that it is not a third-party beneficiary of the Policy. See Doc. #48 at 13. Plaintiff therefore lacks standing to bring a declaratory judgment claim against St. Paul concerning the meaning of the Policy. See Newcal Indus., Inc. v. IKON Office Solutions, Inc., No. C04-2776 FMS, 2004 WL 3017002, at *8 (N.D. Cal. Dec. 23, 2004) ("In cases in which plaintiffs have sought declaration regarding rights and obligations under a contract to which it is not a party, other district courts have similarly found deficiencies in standing.") (citing Douglas v. Don King Productions, Inc., 736 F. Supp. 223, 224 (D. Nev. 1990); Meyer Mfg. Co. v. Cuisine-Ware, Inc., No. 86 C 8144, 1987 WL 5394 (N.D. Ill. Jan. 14, 1987)); see also Carlson Holdings, Inc., 205 F. Supp. 2d at 1073-74 (holding that an insured lacked standing to bring a declaratory judgment claim against its insurance company's reinsurers because there was no privity of contract between the insured and the reinsurers); Standard Fire Ins. Co., 894 F. Supp. 1026-28 (holding that an insurer lacked standing to bring a declaratory judgment claim against a tort plaintiff where the tort plaintiff had no legally cognizable interest in the insurance contract between the insurer and the tortfeasor); Am. Home Assurance Co. v. Liberty Mut. Ins. Co., 475 F. Supp. 1169, 1172-73 (E.D. Pa. 1979) (holding that liability insurers of a contractor lacked standing to bring a declaratory judgment action against the liability insurer of a subcontractor regarding the legal effect of an indemnity agreement between the contractor and subcontractor because whatever practical interest the plaintiffs might have had "concerning the force and effect of the indemnity agreement [was] not sufficient to constitute an adverse legal interest of the variety required under § 2201").
Because Plaintiff lacks standing to pursue its declaratory judgment claim against St. Paul, the Court will grant summary judgment on the claim.
IT IS ORDERED that Defendant St. Paul Fire and Marine Insurance Company's motion for summary judgment (Doc. #33) is granted.