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State Automobile Mutual Insurance Co. v. Lennox

United States District Court, D. Maryland

October 24, 2019

RONALD LENNOX, et al., Defendants.


          Ellen L. Hollander, United States District Judge.

         This case involves a dispute concerning insurance coverage. The litigation is rooted in the partial collapse of a building during a waterproofing project.

         Plaintiff State Automobile Mutual Insurance Company (“State Auto”), as subrogee of Kirkley-Ruddick Funeral Home, P.A. (the “Funeral Home”)[1] and Scott and Cheryl Ruddick, and as assignee of Budget Waterproofing, Inc. (“Budget”), filed suit against Ronald Lennox and State Farm Fire and Casualty Company (“State Farm”). ECF 1 (the “Complaint”). In 2016, while Budget was performing a waterproofing project for Funeral Home, the structure partially collapsed. Funeral Home's insurer, State Auto, paid over $300, 000 on the claim and then sought to recover from Budget's insurance company, State Farm. However, State Farm denied coverage.

         In the Complaint, State Auto alleges that Mr. Lennox, who operated an insurance agency in Glen Burnie, Maryland, failed to procure adequate liability insurance for Budget, in breach of an agreement with Budget and in violation of his duty to exercise due care. Jurisdiction is founded on diversity of citizenship. 28 U.S.C. § 1332(a).

         The Complaint contains four counts. Count I alleges that Mr. Lennox breached a “contractual duty to exercise due care in obtaining liability insurance” for Budget. ECF 1, ¶¶ 24-30. Count II asserts that Mr. Lennox acted negligently in procuring insurance Budget's insurance policy. Id. ¶¶ 31-39. Count III lodges a breach of contract claim against State Farm on a theory of principal-agent liability. Id. ¶¶ 40-52. And, Count IV asserts that State Farm is vicariously liable for Mr. Lennox's negligence. Id. ¶¶ 53-67. Four exhibits are attached to the Complaint. ECF 1-2 to ECF 1-4. Defendants have moved to dismiss the Complaint (ECF 10, the “Motion”), supported by one exhibit. ECF 10-1. Plaintiff opposes the Motion (ECF 12), and defendants have replied. ECF 13.

         No hearing is necessary to resolve the Motion. See Local Rule 105(6). For the reasons that follow, I shall grant the Motion in part and deny it in part. ECF 10.

         I. Background[2]

         Funeral Home is located in Glen Burnie, Maryland. ECF 1, ¶ 14. At the relevant time, Funeral Home was insured against property damage under a State Auto insurance policy. Id. ¶ 18. State Auto is an Ohio corporation that is authorized to issue insurance policies in Maryland. Id. ¶ 1. Budget is a waterproofing contractor incorporated under the laws of Maryland, with its principal place of business in Linthicum Heights, Maryland. Id. ¶ 2. In its line of work, Budget “routinely excavate[s] below the floors and adjacent to the foundation walls of existing buildings.” Id. ¶ 7.

         On or about May 6, 2015, Budget purchased, through Mr. Lennox, a commercial general liability insurance policy (the “Policy” or the “CGL Policy”) issued by State Farm. Id. ¶ 10; ECF 1-1 (CGL Policy). The CGL Policy was effective from May 6, 2015 to May 6, 2016. Id. ¶ 13.

         At the time of the purchase of the Policy, Mr. Lennox was a Maryland-licensed insurance agent operating a State Farm insurance agency in Glen Burnie, Maryland. ECF 1, ¶ 8. According to plaintiff, Mr. Lennox “knew or should have known that Budget Waterproofing needed liability coverage for the collapse or partial collapse of buildings.” Id. ¶ 11.

         The CGL Policy was modified by an addendum titled “CMP-4600 ARTISAN AND SERVICE CONTRACTOR ENDORSEMENT.” ECF 1-1 at 64 (the “Addendum”). The Addendum contains the following warning at the top of the first page: “THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.” Id. In pertinent part, the Addendum provided, id.:

         2. “SECTION II-LIABILITY is amended as follows:

a. The following exclusions are added under Section II-Exclusions of SECTION II-LIABILITY:
Collapse Hazard “Property damage” arising out of or included within the “collapse hazard.” This exclusion does not apply to:
(1) Operations performed for you by others; or
(2) “Property damage” included within the “products-completed operations hazard” or the “underground property damage hazard.”

         The Addendum defined “Collapse hazard” as “‘structural property damage' and any resulting ‘property damage' to any other property at any time.” Id. at 65. Further, the Addendum provided, id.:

(c) “Structural property damage” means the collapse of or structural injury to any building or structure due to:
i. Grading of land, excavating, borrowing, filling, back-filling, tunneling, pile driving, coffer-dam work, or caisson work; or
ii. Moving, shorting underpinning, raising or demolition of any building or structure or removal or rebuilding of any structural support of that building or structure.

         On December 5, 2015, Budget entered into a written agreement with Funeral Home to install a subfloor drainage system. ECF 1, ¶ 15; see ECF 1-2 (Budget-Funeral Home agreement). The project entailed digging below Funeral Home's floor and adjacent to its foundation walls. ECF 1, ¶ 15. On February 24, 2016, while the project was ongoing, Funeral Home partially collapsed. Id. ¶ 17.

         Following the collapse, Funeral Home filed a property claim with its insurer, State Auto, for damages resulting from the occurrence. Id. ¶ 18. After applying the $ 1, 000 deductible under the Policy, State Auto paid Funeral Home $ 306, 347.73. Id. ¶ 19. State Auto notified State Farm of Funeral Home's claim as well as State Auto's subrogation interest. Id. ¶ 20.

         On December 21, 2016, State Farm denied liability coverage for Budget, citing the collapse hazard exclusion in the CGL Policy. Id. at ¶ 21; ECF 1-3 (Denial Letter). It explained, ECF 1-3:

This letter serves as a follow-up to our conversation that occurred on December 19, 2016. At that time, I informed you following a review of our insured's policy, there is an attached endorsement, CMP-4600 that prevents us from extending coverage for this loss. This endorsement includes an exclusion for property damage arising out of or included in the “collapse hazard.” “Collapse hazard” is defined as “structural property damage” and any resulting property damage to any other property at any time.

         State Auto, as subrogee of Funeral Home, filed suit against Budget in this Court on January 17, 2018. ECF 1, ¶ 22; see State Auto. Mut. Ins. Co. v. Budget Waterproofing, Inc., ELH-18-155 (D. Md.). The parties to that case settled on or about September 18, 2018. ECF 1-4 (Settlement Agreement and Release); ECF 10-1 (same).

         Under the terms of the Settlement Agreement and Release, Budget agreed to pay State Auto a total of $ 50, 000. ECF 1-4 at 2-3. Further, Budget “assign[ed] to State Auto all claims that it owns, and/or claims it acquires relating to the Incident, including, but not limited to, all rights Budget Waterproofing may have against State Farm and its agents, including without limitation Ron Lennox and Jim Chen (“Assigned Claims”).” Id. at 3. In return, State Auto agreed that, “[u]pon resolution of the Assigned claims, ” State Auto and Funeral Home “will release their claims against Budget Waterproofing arising from or relating to the Incident and will stipulate to dismiss, with prejudice and without costs, State Auto's Subrogation Action.” Id. And, State Auto promised that if it recovered in regard to the Assigned Claims, it would “share that recovery, net of pro rata fees and costs, with Budget Waterproofing on a 50:50 basis” up to “the first $ 100, 000 in gross recovery.” Id. at 3. Notably, the agreement provided that “Budget Waterproofing and its principals and employees agree to fully cooperate with State Auto in its efforts to pursue any of the Assigned Claims.” Id.

         This litigation followed on May 10, 2019. ECF 1.[3]

         II. Standard of Review

         A defendant may test the legal sufficiency of a complaint by way of a motion to dismiss under Rule 12(b)(6). In re Birmingham, 846 F.3d 88, 92 (4th Cir. 2017); Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 165-66 (4th Cir. 2016); McBurney v. Cuccinelli, 616 F.3d 393, 408 (4th Cir. 2010), aff'd sub nom., McBurney v. Young, 569 U.S. 221 (2013); Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). A Rule 12(b)(6) motion constitutes an assertion by a defendant that, even if the facts alleged by a plaintiff are true, the complaint fails as a matter of law “to state a claim upon which relief can be granted.”

         Whether a complaint states a claim for relief is assessed by reference to the pleading requirements of Fed.R.Civ.P. 8(a)(2). That rule provides that a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” The purpose of the rule is to provide the defendants with “fair notice” of the claims and the “grounds” for entitlement to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).

         To survive a motion under Fed.R.Civ.P. 12(b)(6), a complaint must contain facts sufficient to “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570; see Ashcroft v. Iqbal, 556 U.S. 662, 684 (2009) (citation omitted) (“Our decision in Twombly expounded the pleading standard for ‘all civil actions' . . . .”); see also Paradise Wire & Cable Defined Benefit Pension Plan v. Weil, 918 F.3d 312, 317 (4th Cir. 2019); Willner v. Dimon, 849 F.3d 93, 112 (4th Cir. 2017). To be sure, a plaintiff need not include “detailed factual allegations” in order to satisfy Rule 8(a)(2). Twombly, 550 U.S. at 555. Moreover, federal pleading rules “do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted.” Johnson v. City of Shelby, Miss., 574 U.S. 10, 10 (2014) (per curiam). But, mere “‘naked assertions' of wrongdoing” are generally insufficient to state a claim for relief. Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (citation omitted).

         In other words, the rule demands more than bald accusations or mere speculation. Twombly, 550 U.S. at 555; see Painter's Mill Grille, LLC v. Brown, 716 F.3d 342, 350 (4th Cir. 2013). If a complaint provides no more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action, ” it is insufficient. Twombly, 550 U.S. at 555. “[A]n unadorned, the-defendant-unlawfully-harmed-me accusation” does not state a plausible claim of relief. Iqbal, 556 U.S. at 678. Rather, to satisfy the minimal requirements of Rule 8(a)(2), the complaint must set forth “enough factual matter (taken as true) to suggest” a cognizable cause of action, “even if . . . [the] actual proof of those facts is improbable and . . . recovery is very remote and unlikely.” Twombly, 550 U.S. at 556 (internal quotation marks omitted).

         In reviewing a Rule 12(b)(6) motion, a court “must accept as true all of the factual allegations contained in the complaint” and must “draw all reasonable inferences [from those facts] in favor of the plaintiff.” E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011) (citations omitted); see Semenova v. MTA, 845 F.3d 564, 567 (4th Cir. 2017); Houck v. Substitute Tr. Servs., Inc., 791 F.3d 473, 484 (4th Cir. 2015); Kendall v. Balcerzak, 650 F.3d 515, 522 (4th Cir. 2011), cert. denied, 565 U.S. 943 (2011). But, a court is not required to accept legal conclusions drawn from the facts. See Papasan v. Allain, 478 U.S. 265, 286 (1986); Glassman v. Arlington Cty., 628 F.3d 140, 146 (4th Cir. 2010). “A court decides whether [the pleading] standard is met by separating the legal conclusions from the factual allegations, assuming the truth of only the factual allegations, and then ...

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