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Hartford Underwriters Insurance Co. v. Trinity Protection Services Inc.

United States District Court, D. Maryland

July 28, 2017

HARTFORD UNDERWRITERS INSURANCE COMPANY, et al., Plaintiffs,
v.
TRINITY PROTECTION SERVICES INC., Defendant.

          REPORT AND RECOMMENDATION

          Timothy J. Sullivan United States Magistrate Judge

         This Report and Recommendation addresses the “Motion for Clerk's Entry of Default Judgment in a Sum Certain Pursuant to Fed.R.Civ.P. 55(b)(1)” (“Motion”) (ECF No. 14) filed by Plaintiffs Hartford Underwriters Insurance Company, Hartford Fire Insurance Company, Property and Casualty Insurance Company of Hartford, and Twin City Fire Insurance Company (collectively, “Hartford”). Defendant Trinity Protection Services Inc. (“Trinity”) has not filed a response, and the time for doing so has passed. See Loc. R. 105.2(a). On June 26, 2017, in accordance with 28 U.S.C. § 636 and pursuant to Local Rule 301.6, Judge Chuang referred this case to me for a report and recommendation on Hartford's Motion. (ECF No. 15.) I find that a hearing is unnecessary in this case. See Fed. R. Civ. P. 55(b)(2); Loc. R. 105.6. For the reasons set forth below, I respectfully recommend that Hartford's Motion be GRANTED IN PART and DENIED IN PART.

         I. FACTUAL AND PROCEDURAL HISTORY

         In this case, Hartford filed suit against Trinity for breach of contract, account stated, quantum meruit, and unjust enrichment. (ECF No. 1.) Trinity was served with the Complaint, summons, and case management order, but did not file an answer or responsive pleading within the requisite time period. On March 1, 2017, Hartford moved for the Clerk's entry of default (ECF No. 12), and the Clerk entered default against Hawk on March 28, 2017 (ECF No. 13). On April 4, 2017, Hartford filed the Motion, to which Trinity has not responded.

         II. LEGAL ANALYSIS

         A. Standard for Entry of Default Judgment

         In determining whether to award a default judgment, the Court accepts as true the well-pleaded factual allegations in the complaint as to liability. See Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780-81 (4th Cir. 2001); United States ex rel. Durrett-Sheppard Steel Co. v. SEF Stainless Steel, Inc., No. RDB-11-2410, 2012 WL 2446151, at *1 (D. Md. June 26, 2012). Nonetheless, the Court must consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law. United States v. Redden, No. WDQ-09-2688, 2010 WL 2651607, at *2 (D. Md. June 30, 2012) (citing Ryan, 253 F.3d at 790). Although the Fourth Circuit has a “strong policy that cases be decided on the merits, ” United States v. Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993), default judgment “is appropriate when the adversary process has been halted because of an essentially unresponsive party.” S.E.C. v. Lawbaugh, 359 F.Supp.2d 418, 421 (D. Md. 2005). If the Court determines that liability is established, the Court must then determine the appropriate amount of damages. CGI Finance, Inc., v. Johnson, No. ELH-12-1985, 2013 WL 1192353, at *1 (D. Md. March 21, 2013). The Court does not accept factual allegations regarding damages as true, but rather must make an independent determination regarding such allegations. Durrett-Sheppard Steel Co., 2012 WL 2446151 at *1.

         Rule 55 of the Federal Rules of Civil Procedure provides that “[i]f, after entry of default, the Plaintiff's Complaint does not specify a ‘sum certain' amount of damages, the court may enter a default judgment against the defendant pursuant to Fed.R.Civ.P. 55(b)(2).” A plaintiff's assertion of a sum in a complaint does not make the sum “certain” unless the plaintiff claims liquidated damages; otherwise, the complaint must be supported by affidavit or documentary evidence. United States v. Redden, No. WDQ-09-2688, 2010 WL 2651607, at *2 (D. Md. June 30, 2012). Rule 55(b)(2) provides that “the court may conduct hearings or make referrals . . . when, to enter or effectuate judgment, it needs to . . . determine the amount of damages.” The Court is not required to conduct an evidentiary hearing to determine damages, however; it may rely instead on affidavits or documentary evidence in the record to determine the appropriate sum. See, e.g., Mongue v. Portofino Ristorante, 751 F.Supp.2d 789, 795 (D. Md. 2010).

         B. Liability

         Subject matter jurisdiction in this case is predicated on the diversity of the parties. A federal court sitting in diversity must apply the choice of law rules applicable in the forum state. Klaxon v. Stentor Electric Mfg. Co., Inc., 313 U.S. 487, 496-97 (1941). In contract actions, Maryland courts generally apply the law of the jurisdiction where the contract was made, pursuant to the doctrine of lex loci contractus. See, e.g., Allstate Ins. Co. v. Hart, 327 Md. 526 (1992). Under the lex loci principle, the law of the place where the contract was made governs. Rouse Co. v.. Fed. Ins. Co., 991 F.Supp. 460, 462 (D. Md. 1998). “[A] contract is ‘made' where the last act necessary for its formation is performed.” Id. For an insurance policy, the last act necessary for formation of the contract is the delivery of the policy and payment of premiums. Id.; Commercial Union Ins. Co. v. Porter Hayden Co., 97 Md.App. 442 (1993) (vacated on other grounds).

         The insurance policy at issue in this case was signed by Trinity, paid for (at least initially), delivered, and cancelled in Maryland. Applying Maryland's choice of law rules, I find that the last acts necessary for the formation of the insurance contract at issue occurred in Maryland. Accordingly, I will apply Maryland substantive law.

         1. Count I - Breach of Contract

         Count I of the Complaint asserts a claim of breach of contract. (ECF No. 1 ¶¶ 10-13.) “To prevail in an action for breach of contract, a plaintiff must prove that the defendant owed the plaintiff a contractual obligation and that the defendant breached that obligation.” Taylor v. NationsBank, N.A., 365 Md. 166, 175 (2001). According to the allegations of the Complaint, Hartford issued a Workers Compensation Insurance Policy (“Policy”) to Trinity for the periods of December 10, 2013 to December 10, 2014; December 10, 2014 to December 10, 2015; and December 10, 2015 to December 10, 2016. (ECF No. 1 ¶ 8.) Hartford cancelled the Policy on July 14, 2016. (Id.) Under the terms of the Policy, Trinity agreed to pay certain premiums to Hartford. Initially, Trinity was to pay an initial estimated annual premium (“estimated premium”), which was based on an estimate of the covered employees and their respective work duties during the policy period. At the end of each policy period, Hartford performed an audit of Trinity's records to determine whether the estimated premium established at the beginning of the policy period was too high or too low. If the estimated premium was too low, Trinity would be required to pay additional premiums to Hartford. If the estimated premium was too high, Hartford would be required to pay a refund to Trinity. (Id.)

         According to the Complaint, Hartford performed an audit of Trinity's records, as it was permitted to do by the Policy. (Id. ¶ 11.) Hartford determined that Trinity owed “additional audit premiums and/or unpaid fixed monthly premiums of $299, 539.68” due under the Policy. (Id.) Hartford sent several bills to Trinity demanding payment of the additional premiums owed, but Trinity refused to pay the additional premiums. Accepting as true the unchallenged allegations of the Complaint, Hartford has shown that Trinity had a contractual obligation to pay Hartford the premiums due under the Policy. Trinity breached that obligation by failing to make ...


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