SER State Auto Property Insurance v. Hon. James C. Stucky, Judge ( 2016 )

STATE OF WEST VIRGINIA
SUPREME COURT OF APPEALS
State of West Virginia ex rel. FILED
State Auto Property Insurance June 14, 2016
Companies d/b/a State Auto Property released at 3:00 p.m.
and Casualty Insurance Company, an Ohio RORY L. PERRY II, CLERK
SUPREME COURT OF APPEALS
Company, OF WEST VIRGINIA
Petitioner
vs.) No. 15-1178 (Kanawha County 11-C-606)
The Honorable James C. Stucky, Judge of
the Circuit Court of Kanawha County, West
Virginia and CMD Plus, Inc., a West Virginia
Corporation,
Respondents
MEMORANDUM DECISION
Petitioner, and third-party defendant in the underlying action, State Auto Property
and Casualty Insurance Company (“State Auto”), by counsel Trevor K. Taylor, seeks a
writ prohibiting enforcement of the November 10, 2015, order of the Circuit Court of
Kanawha County that denied State Auto’s renewed motion pursuant to West Virginia
Rule of Civil Procedure Rule 12(b)(6) to dismiss the third-party complaint of the
respondent herein and third-party plaintiff below, CMD Plus, Inc. (“CMD”), in which
CMD asserts causes of action for breach of contract, common law bad faith, and statutory
bad faith.
Upon a thorough review of the record, the arguments of counsel and applicable
precedent, we conclude that the circuit court properly denied State Auto’s motion to
dismiss. Consequently, we deny the requested writ. This case does not present a new or
significant question of law and we find no clear error. For these reasons, a memorandum
decision denying State Auto’s petition for a writ of prohibition is appropriate under Rule
21 of the West Virginia Rules of Appellate Procedure.
I. FACTUAL AND PROCEDURAL HISTORY
In CMD’s third-party complaint below, it alleges that prior to March 9, 2009,
CMD entered into a contractual agreement with the co-defendants below, C.K. Shah and
Kimberly S. Shah, in which CMD agreed to construct a home on property owned by the
1
Shahs in Kanawha County, West Virginia. Thereafter, Barry G. Evans and Ann M.
Evans, who owned property adjacent to the Shahs’ property, filed a complaint against
CMD and the Shahs alleging that the construction activity on the Shah property caused
surface water, storm water, mud, and debris to escape the Shah property and enter the
Evans property. CMD subsequently moved, pursuant to West Virginia Rule of Civil
Procedure 14(a), to file a third-party complaint against its insurer, State Auto, and the
circuit court granted the motion.
In its third-party complaint, CMD alleged causes of action against State Auto for
common law bad faith, violations of the West Virginia Unfair Trade Practices Act, W.
Va. Code §§ 33-11-1 to 33-11-10, and breach of contract. According to CMD, it
maintained a policy of commercial general liability with State Auto for which it had paid
all premiums. CMD asserted that State Auto did not properly handle CMD’s requests to
take action regarding the Evanses’ alleged property damage and, as a result, the Evanses
filed their complaint against CMD and the Shahs for the alleged property damage to their
property.
State Auto filed a motion to dismiss CMD’s third-party complaint which was
denied by the circuit court by order dated September 25, 2012.1 On August 13, 2015,
State Auto filed a renewed Rule 12(b)(6) motion to dismiss CMD’s third-party
complaint. In its renewed motion, State Auto asserted that subsequent to the denial of its
previous motion to dismiss, State Auto filed a declaratory judgment action which
ultimately resulted in an agreement between State Auto and CMD as to all coverage
issues. State Auto asserted that as part of this agreement, it was ordered to pay CMD’s
counsel’s attorney fees in the amount of $52,757.54. According to State Auto, the
agreement resolved all of the Evanses’ claims and completely released CMD from any
and all liability relating to the allegations contained in the Evanses’ complaint for past,
present, and future damages.
By order dated November 10, 2015, the circuit court denied State Auto’s renewed
motion to dismiss CMD’s third-party complaint. Thereafter, State Auto filed a petition
with this Court seeking a writ of prohibition to prevent enforcement of the circuit’s
court’s order denying its renewed motion to dismiss.
II. ANALYSIS
When a party comes before this Court seeking a writ of prohibition on the basis
that the lower court exceeded its legitimate powers, we are guided by our holding in
1
State Auto indicates that its motion to dismiss Erie’s third-party complaint was
denied “except that the Court dismissed all such claims that, in actuality, are claims of the
Plaintiffs, Barry G. Evans and Ann M. Evans.”
2
syllabus point 4 of State ex rel. Hoover v. Berger, 199 W. Va. 12, 483 S.E.2d 12 (1996),
which provides:
In determining whether to entertain and issue the writ
of prohibition for cases not involving an absence of
jurisdiction but only where it is claimed that the lower
tribunal exceeded its legitimate powers, this Court will
examine five factors: (1) whether the party seeking the writ
has no other adequate means, such as direct appeal, to obtain
the desired relief; (2) whether the petitioner will be damaged
or prejudiced in a way that is not correctable on appeal; (3)
whether the lower tribunal’s order is clearly erroneous as a
matter of law; (4) whether the lower tribunal’s order is an oft
repeated error or manifests persistent disregard for either
procedural or substantive law; and (5) whether the lower
tribunal’s order raises new and important problems or issues
of law of first impression. These factors are general
guidelines that serve as a useful starting point for determining
whether a discretionary writ of prohibition should issue.
Although all five factors need not be satisfied, it is clear that
the third factor, the existence of clear error as a matter of law,
should be given substantial weight.
At the outset, we note that State Auto’s motion below was a renewed motion to
dismiss pursuant to Rule 12(b)(6). Nevertheless, State Auto presented in its motion
matters outside the pleadings. Under our law, “[o]nly matters contained in the pleading
can be considered on a motion to dismiss under Rule 12(b) R. C. P., and if matters
outside the pleading are presented to the court and are not excluded by it, the motion
should be treated as one for summary judgment[.]” Syl. pt. 4, in part, U.S. Fidelity &
Guar. Co. v. Eades, 150 W. Va. 238, 144 S.E.2d 703 (1965), overruled on other grounds
by Sprouse v. Clay Communication, Inc., 158 W. Va. 427, 211 S.E.2d 674 (1975). In its
order denying State Auto’s motion to dismiss, the circuit court considered only matters
contained in CMD’s third-party complaint, and treated State Auto’s motion as a motion
to dismiss. The circuit court specifically noted in its order that “[t]he pleadings which
form the basis for review for the Court are the same pleadings which resulted in the prior
denial of State Auto’s initial Motion.” “This Court will not pass on a nonjurisdictional
question which has not been decided by the trial court in the first instance.” Syl. pt. 2,
Sands v. Sec. Trust Co., 143 W. Va. 522, 102 S.E.2d 733 (1958). Therefore, in reviewing
the circuit court’s order, this Court will consider only those matters contained in CMD’s
third-party complaint as did the circuit court.
Regarding motions to dismiss under Rule 12(b)(6), this Court has indicated that
“[t]he purpose of a motion under Rule 12(b)(6) of the West Virginia Rules of Civil
3
Procedure is to test the sufficiency of the complaint.” Cantley v. Lincoln Cty. Comm’n,
221 W. Va. 468, 470, 655 S.E.2d 490, 492 (2007). We also are mindful that
[a]ll that the pleader is required to do is to set forth
sufficient information to outline the elements of his claim or
to permit inferences to be drawn that these elements exist.
The trial court should not dismiss a complaint merely because
it doubts that the plaintiff will prevail in the action, and
whether the plaintiff can prevail is a matter properly
determined on the basis of proof and not merely on the
pleadings. Wright & Miller, Federal Practice and Procedure:
Civil § 1216 (1969).
In view of the liberal policy of the rules of pleading
with regard to the construction of plaintiff’s complaint, and in
view of the policy of the rules favoring the determination of
actions on the merits, the motion to dismiss for failure to state
a claim should be viewed with disfavor and rarely granted.
The standard which plaintiff must meet to overcome a Rule
12(b)(6) motion is a liberal standard, and few complaints fail
to meet it. The plaintiff’s burden in resisting a motion to
dismiss is a relatively light one. Williams v. Wheeling Steel
Corp., 266 F. Supp. 651 (N.D. W. Va. 1967).
Lodge Dist. Co. v. Texaco, Inc., 161 W. Va. 603, 605-06, 245 S.E.2d 157, 159 (1978).
We further have held that “[t]he trial court, in appraising the sufficiency of a complaint
on a Rule 12(b)(6) motion, should not dismiss the complaint unless it appears beyond
doubt that the plaintiff can prove no set of facts in support of his claim which would
entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957).” Syl. pt. 3, Chapman
v. Kane Transfer Co., 160 W. Va. 530, 236 S.E.2d 207 (1977). With these standards in
mind, we proceed to consider the issues before us.
A. CMD’s Common Law Bad Faith Claim
State Auto first asserts that CMD’s claim for common law bad faith must fail as a
matter of law. According to State Auto, CMD’s third-party complaint against it
constitutes a third-party bad faith claim which has been abolished in this State.2 This
Court has explained:
2
Neither common law nor statutory third-party bad faith claims now exist in this
State. This Court held in the syllabus of Elmore v. State Farm Mutual Automobile
(continued . . .)
4
The terms “first-party” and “third-party” have distinctively
different meanings in the context of bad faith settlement
actions against insurers. For definitional purposes, a first-
party bad faith action is one wherein the insured sues his/her
own insurer for failing to use good faith in settling a claim
brought against the insured or a claim filed by the insured. A
third-party bad faith action is one that is brought against an
insurer by a plaintiff who prevailed in a separate action
against an insured tortfeasor.
State ex rel. Allstate Ins. v. Gaughan, 203 W. Va. 358, 369, 508 S.E.2d 75, 86 (1998)
(footnotes omitted). CMD’s third-party complaint against State Auto is a first-party bad
faith action because CMD is suing its own insurer, State Auto, for failing to use good
faith in settling a claim brought against CMD by the Evanses.
This Court has recognized two types of first-party bad faith claims:
One such action may arise when the insurer fails to use
good faith in settling a claim by someone the insured harmed
or injured. . . . However, the second type of first-party bad
faith action against an insurer concerns a claim brought by the
insured against the insurer, e.g., house burned down.
Id. at 370 n.17, 508 S.E.2d at 87 n.17. CMD’s claim falls under the first of the two types
of first-party bad faith actions. In its third-party complaint against State Auto, CMD
alleged, inter alia, “[a]s a result of State Auto not properly handling CMD’s claim, the
Plaintiffs filed their Complaint against CMD and the Shahs for the alleged property
damage to the Evans property.” This states a first-party common law bad faith claim
under our law in that CMD alleged that its insurer, State Auto, failed to use good faith in
settling a claim by someone the insured allegedly harmed or injured.
State Auto further asserts that CMD’s bad faith claim against State Auto must fail
because CMD did not allege in its third-party complaint that the Evanses’ action against
CMD resulted in an excess judgment against CMD. This Court has explained that claims
falling under the first type above “often arise after a third-party claimant obtains a
Insurance Company, 202 W. Va. 430, 504 S.E.2d 893 (1998), that “[a] third party has no
cause of action against an insurance carrier for common law breach of the implied
covenant of good faith and fair dealing or for common law breach of fiduciary duty.”
Statutory third-party bad faith claims were abolished by the Legislature in W. Va. Code §
33-11-4a (2005).
5
judgment in excess of policy limits and the insured later sues the insurance company for
failure to settle within policy limits.” State ex rel. Brison v. Kaufman, 213 W. Va. 624,
635, 584 S.E.2d 480, 491 (2003) (Davis, J., concurring) (quoting Palmer v. Farmers Ins.
Exch., 861 P.2d 895, 905 (Mont. 1993)). While this Court has acknowledged that
common law bad faith claims falling under the first type above may or often arise where
there is an excess judgment against the insured, we have not held that such claims can
only arise where there has been an excess judgment.
Therefore, we find that CMD met its burden in setting forth a sufficient first-party
bad faith claim against State Auto.3
B. CMD’s Statutory Bad Faith Claim
In Count II of its third-party complaint, CMD alleges violations of the West
Virginia Unfair Trade Practices Act. See W. Va. Code § 33-11-4(9) (2002). Specifically,
CMD asserts that State Auto violated W. Va. Code § 33-11-4(9)(b), (f), and (g), which
provide:
No person shall commit or perform with such
frequency as to indicate a general business practice any of the
following :
....
(b) Failing to acknowledge and act reasonably
promptly upon communications with respect to claims arising
under insurance policies;
....
(f) Not attempting in good faith to effectuate prompt,
fair and equitable settlements of claims in which liability has
become reasonably clear;
(g) Compelling insureds to institute litigation to
recover amounts due under an insurance policy by offering
3
State Auto also argues that the insurance policy at issue does not provide
coverage to property damages incurred by CMD and the Shahs. However, this Court does
not read CMD’s third-party complaint as asserting such a claim. Instead, as noted above,
we believe that the third-party complaint alleges that State Auto failed to use good faith
in settling a claim of the Evanses whom CMD allegedly harmed or injured. Moreover,
State Auto puts forth several arguments based on evidence adduced below. However, this
evidence is not pertinent to evaluating the sufficiency of a complaint pursuant to Rule
12(b)(6).
6
substantially less than the amount ultimately recovered in
actions brought by the insureds, when the insureds have made
claims for amounts reasonably similar to the amounts
ultimately recovered[.]
This Court has previously recognized that “[a]n implied private cause of action may exist
for a violation by an insurance company of the unfair settlement practice provisions of
W. Va. Code, 33-11-4(9).” Syl. pt. 2, in part, Jenkins v. J.C. Penney Cas. Ins. Co., 167
W. Va. 597, 280 S.E.2d 252 (1981), overruled on other grounds by State ex rel. State
Farm Fire v. Madden, 192 W. Va. 155, 451 S.E.2d 721 (1994). State Auto contends,
however, that CMD has no standing to assert that State Auto violated statutory duties
owed to the Evanses, and the Evanses have no action against State Auto because the
Evanses are third-party claimants. State Auto’s argument must fail.
State Auto is correct that the Evanses do not have a statutory bad faith claim
against it pursuant to W. Va. Code § 33-11-4a (2005), which eliminates third-party
statutory bad faith claims. However, as the insured under a liability insurance policy
issued by State Auto, CMD is a first-party claimant and has a cause of action for State
Auto’s alleged violations of W. Va. Code § 33-11-4(9) in settling those claims that CMD
becomes legally obligated to pay to the Evanses because of property damage suffered by
the Evanses. Inasmuch as a private cause of action exists for violations of W. Va. Code §
33-11-4(9), and CMD alleged in its third-party complaint violations of W. Va. Code §
33-11-4(9), we find that CMD set forth sufficient information to outline the elements of a
statutory bad faith claim.
State Auto’s final argument with regard to CMD’s bad faith claims is that these
claims are barred by the one-year statute of limitation applicable to bad faith claims. Syl.
pt. 4, Noland v. Virginia Insurance Reciprocal, 224 W. Va. 372, 686 S.E.2d 23 (2009)
(“The one year statute of limitations contained in W. Va. Code § 55-2-12(c) (1959)
(Repl. Vol. 2008) applies to a common law bad faith claim”).4 Essentially, State Auto
argues that based on the facts in CMD’s third-party complaint, State Auto’s improper
handling of its insurance claim began late in 2009 and was clearly known by CMD at
least by May 2010, if not sooner. Therefore, State Auto contends that CMD’s March 20,
2012, third-party complaint was filed outside of the one-year statute of limitation. CMD
responds that its bad faith causes of action are timely because State Auto’s bad faith
handling of the claim continued until CMD’s third-party complaint was filed.
Under our law, “[i]n the great majority of cases, the issue of whether a claim is
barred by the statute of limitations is a question of fact for the jury.” Gaither v. City
4
State Auto argued the statute of limitation issue in its brief below, but the circuit
court did not address the issue in its order denying State Auto’s motion to dismiss.
7
Hosp., Inc., 199 W. Va. 706, 714–15, 487 S.E.2d 901, 909–10 (1997). Consequently, the
question is proper for the court only “[w]here there are undisputed facts from which only
one conclusion may be drawn[.]” Carey v. Kerr-McGee Chem. Corp., 999 F. Supp. 1109,
1115 (N.D. Ill. 1998). This Court’s examination of the pleadings indicates that this is not
the type of case from which only one conclusion may be drawn regarding the timeliness
of CMD’s bad faith claims. For this reason, we find no merit to State Auto’s timeliness
argument.
For the reasons set forth above, we find that the circuit court did not clearly err in
denying State Auto’s renewed motion to dismiss CMD’s common law and statutory bad
faith claims pursuant to Rule 12(b)(6).
C. CMD’s Breach of Contract Claim Against State Auto
The last cause of action alleged by CMD in its third-party complaint is that State
Auto breached the insurance policy by failing to satisfy all legitimate claims made
against CMD which were covered under the insurance policy. This Court has indicated
that “an insurance policy and all rights arising from the policy are controlled by
principles of contract law.” Farmers & Mechs. Mut. Ins. Co. v. Allen, 236 W. Va. 269,
___, 778 S.E.2d 718, 724 (2015). Moreover, a complaint that asserts the existence of a
contract and a breach thereof with damages is sufficient to survive a motion to dismiss.
See Harper v. Bus Lines, 117 W. Va. 228, 185 S.E.2d 225 (1936). By alleging that State
Auto has failed to fulfill its duties under the subject insurance policy, CMD has
sufficiently pled a breach of contract claim. Therefore, we find that the circuit court did
not err in denying State Auto’s Rule 12(b)(6) motion to dismiss CMD’s claim for breach
of contract.
III. CONCLUSION
When we apply the factors in Hoover to the facts of this case, we find that State
Auto has failed to prove the existence of any of the factors. First, State Auto has other
adequate means to obtain the desired relief. For example, State Auto could file a motion
for summary judgment after the completion of discovery in order to obtain relief. Second,
this Court is unable to find that in the absence of granting the writ sought, State Auto will
be damaged or prejudiced in a way that is not correctable on appeal because there has not
yet been a judgment against State Auto arising from CMD’s third-party complaint. Third,
and most importantly, the circuit court’s order denying State Auto’s renewed Rule
12(b)(6) motion to dismiss CMD’s third-party complaint does not constitute clear error.
Fourth, State Auto does not allege that the circuit court’s order is an oft repeated error or
manifests persistent disregard for either procedural or substantive law. Finally, the circuit
court’s order does not raise new and important problems or issues of law of first
impression. For these reasons, this Court denies the writ of prohibition sought by State
Auto.
8
Writ denied.
ISSUED: June 14, 2016
CONCURRED IN BY:
Justice Robin Jean Davis
Justice Brent D. Benjamin
Justice Margaret L. Workman
DISSENTING:
Chief Justice Menis E. Ketchum
Justice Allen H. Loughry II
Chief Justice Ketchum, dissenting:
Respondent CMD Plus, Inc. (“CMD”), is in the business of residential
construction. CMD purchased a commercial general liability policy (with $1 million in
coverage) from the petitioner, State Auto Property and Casualty Company (“State
Auto”).
C.K. and Kimberly S. Shah (“the Shahs”) own a tract of land. The Shahs hired
CMD to build a custom home on the tract. The Shahs’ tract is a steep hillside that slopes
down to an adjoining residence owned by Barry G. and Ann M. Evans (“the Evanses”).
Beginning around March 9, 2009, allegedly because of CMD’s negligent construction
techniques, the hillside began to slide toward the Evanses’ residence causing property
damage. In April 2011, the Evanses sued CMD; State Auto settled this suit against its
insured, CMD, in August 2015. Additionally, the slide damaged a sewer line owned by
the Charleston Sanitary Board; State Auto paid the Board to relocate the line and settled
this claim against its insured, CMD.
On March 20, 2012, CMD filed a third-party complaint against State Auto. The
complaint asserted three causes of action: (1) that State Auto acted in bad faith in its
handling of the insurance policy, and was liable for CMD’s net economic losses,
attorney’s fees, annoyance and inconvenience, mental anguish, and emotional distress
under Hayseeds, Inc. v. State Farm Fire & Cas., 177 W.Va. 323, 352 S.E.2d 73 (1986);
(2) that State Auto had breached its liability insurance contract with CMD; and (3) that
9
State Auto violated the West Virginia Unfair Trade Practice Act by failing to attempt a
good faith settlement of the Evanses’ claims.
CMD’s first and second counts allege its insurer, State Auto, breached the
contractual duty of good faith by acting in “bad faith” in the way it handled CMD’s
defense. The counts are not separate and unique, and the damages recoverable for “bad
faith” and “breach of an insurance contract” overlap. See Gaddy Eng’g Co. v. Bowles
Rice McDavid Graff & Love, LLP, 231 W.Va. 577, 587, 746 S.E.2d 568, 578 (2013) (this
Court “has declined to recognize an independent claim for a breach of the common law
duty of good faith and has instead held that such a claim sounds in breach of contract.”);
Highmark W.Va., Inc. v. Jamie, 221 W.Va. 487, 492, 655 S.E.2d 509, 514 (2007) (the
breach of “an implied covenant of good faith and fair dealing does not provide a cause of
action apart from a breach of contract claim.”).
Our law allows only two types of first-party bad faith claims, that is, where an
insured (like CMD) sues its insurer (like State Auto):
First, the first-party bad faith action may arise when an
insurer fails to use good faith in resolving a “loss claim” filed
by the insured. The second type of first-party bad faith action
may arise as a result of the insurer’s failure to use good faith
in settling a lawsuit by a third-party the insured harmed,
resulting in an “excess judgment” against the insured.
State ex rel. Brison v. Kaufman, 213 W.Va. 624, 634, 584 S.E.2d 480, 490 (2003) (Davis,
J., concurring).
In the instant case, CMD’s lawsuit against State Auto does not involve a “loss
claim” filed by the insured. The liability policy at issue explicitly excludes coverage for
damage to property owned by CMD and the Shahs. The only parties who could file a
claim against the State Auto policy for losses were the Evanses and the Charleston
Sanitary Board, who actually sustained property damage and who were subsequently paid
in settlements by State Auto. Further, because State Auto settled all of the claims by the
Evanses and by the Charleston Sanitary Board, there is no “excess judgment” against
CMD.
Put simply, under Brison, CMD has failed to assert a cause of action for first-party
bad faith or breach of the contractual duty of good faith. I would therefore have granted
the writ of prohibition as to these two claims.
CMD’s third and final count alleges that its insurer, State Auto, engaged in unfair
claim settlement practices and thereby violated three subsections of the UTPA. CMD
alleges that State Auto, as a general business practice, failed to act reasonably promptly
on CMD’s claim for coverage; failed to effectuate a prompt, fair, and equitable settlement
10
of either the Evanses’ claim or CMD’s claim; and forced the Evanses and CMD to
institute litigation to obtain coverage due under State Auto’s commercial general liability
policy. Specifically, CMD alleges violations of the following three subsections of the
UTPA, W.Va. Code § 33-11-4(9):
No person shall commit or perform with such
frequency as to indicate a general business practice any of the
following: . . .
(b) Failing to acknowledge and act reasonably
promptly upon communications with respect to claims arising
under insurance policies; . . .
(f) Not attempting in good faith to effectuate prompt,
fair and equitable settlements of claims in which liability has
become reasonably clear;
(g) Compelling insureds to institute litigation to
recover amounts due under an insurance policy by offering
substantially less than the amounts ultimately recovered in
actions brought by the insureds, when the insureds have made
claims for amounts reasonably similar to the amounts
ultimately recovered; . . .
CMD has no standing to bring an action under these three subsections of the
UTPA.
The first two subsections of W.Va. Code § 33-11-4(9) relied upon by CMD are
subsection (9)(b) and subsection (9)(f). In the context of a liability insurance policy,
subsections (9)(b) and (9)(f) are designed to protect plaintiffs who seek liability-related
damages from an insured, and not designed to protect the insured.
Subsection (9)(b) pertains to “communications with respect to claims,” and
subsection (9)(f) pertains to “settlements of claims in which liability has become
reasonably clear” (emphasis added). In the context of a liability insurance policy, the
term “claim” is used “in its common (and common sense) usage: an effort by a third party
to recover money from the insured.” Evanston Ins. Co. v. Sec. Assur. Co., 715 F. Supp.
1405, 1412 (N.D. Ill. 1989) (quoting Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v.
Cont’l Illinois Corp., 673 F. Supp. 300, 307 n.17 (N.D. Ill. 1987). “‘Claim’ ordinarily
means a demand on the insured for damages resulting from the insured’s alleged
negligent act or omission.” Safeco Title Ins. Co. v. Gannon, 774 P.2d 30, 33 (Wash. App.
1989). “[A] claim must relate to an assertion of legally cognizable damage, and must be
a type of demand that can be defended, settled and paid by the insurer.” Evanston Ins.
Co. v. GAB Bus. Servs., Inc., 521 N.Y.S.2d 692, 695 (1987).
11
In the context of the commercial general liability insurance policy issued by State
Auto to CMD, the “claims” at issue in subsections (9)(b) and (9)(f) are the demands upon
CMD by Mr. and Mrs. Evans and by the Charleston Sanitary Board for compensation for
the damages resulting from CMD’s alleged negligent act or omission. Hence, to the
extent State Auto failed to “act reasonably promptly upon communications with respect
to claims,” or failed to “effectuate prompt, fair and equitable settlements of claims,” in
this case, the UTPA protects only the efforts by Mr. and Mrs. Evans and the Charleston
Sanitary Board to recover legally cognizable damages from CMD by way of State Auto’s
liability policy. As the insured protected by the liability policy, CMD could make no
type of demand that could be defended, settled and paid by State Auto. Accordingly,
CMD has no standing to assert a claim under subsection (9)(b) or subsection (9)(f) of
W.Va. Code § 33-11-4.
The third subsection of W.Va. Code § 33-11-4 relied upon by CMD is subsection
(9)(g). That subsection prohibits an insurer from “[c]ompelling insureds to institute
litigation to recover amounts due under an insurance policy by offering substantially less
than the amounts ultimately recovered in actions brought by the insureds, when the
insureds have made claims for amounts reasonably similar to the amounts ultimately
recovered.” W.Va. Code § 33-11-4(9)(g). This statute clearly has no application to a
liability insurance policy.
“Where the language of a statute is clear and without ambiguity the plain meaning
is to be accepted without resorting to the rules of interpretation.” Syllabus Point 2, State
v. Elder, 152 W.Va. 571, 165 S.E.2d 108 (1968). Under the typical liability policy, an
insured is not entitled to any “amounts” under the policy, and an insured can make no
“claims for amounts” that would later be “reasonably similar to the amounts ultimately
recovered.” Under the commercial general liability policy issued by State Auto, the
insured (CMD) was entitled to two things: a defense against a liability claim from a third
party, and indemnification of any damages (within policy limits) due to the third party as
a result of CMD’s alleged negligent act or omission. CMD cites us to no authority
suggesting CMD had a right to “recover amounts due” under the State Auto policy.
CMD therefore has no standing to assert to assert a claim under W.Va. Code § 33-11­
4(9)(g).
I would therefore have also granted a writ of prohibition as to CMD’s third, UTPA
cause of action.
In summary, I believe that the circuit court’s order was clearly erroneous as a
matter of law. I would have granted the requested writ, and directed the circuit court to
dismiss CMD’s causes of action under the UTPA. I therefore strongly dissent.
12
LOUGHRY, Justice, dissenting:
In affirming the trial court’s decision to deny State Auto’s motion to dismiss the
third-party complaint of CMD, the majority has sanctioned what clearly amounts to the
assertion of a third-party bad faith claim–an action that has been statutorily eliminated.1
Through its third-party complaint filed against State Auto, CMD seeks to recover for the
delays that transpired as the result of litigation that the Evanses filed against CMD.
While at first glance it appears that CMD has asserted a first-party bad faith action
against its own insurer (State Auto), upon analysis of the claim in terms of the
commercial general liability (“CGL”) coverage at issue, CMD has merely sought to
disguise a third-party bad faith claim as a first-party claim to avoid the statutory
proscription against such claims. Accordingly, I must dissent.
Typically, a first-party bad faith claim presents when the insured sues his or her
own insurer for failing to use good faith in settling a “loss claim” brought against the
insured or a claim that was filed by the insured. See State ex rel. Allstate Ins. Co. v.
Gaughan, 203 W.Va. 358, 369, 508 S.E.2d 76, 86 (1998). Alternatively, a first-party
claim may occur when a lawsuit results in an excess judgment against the insured.2 In
this case, neither of those predicate scenarios exist. CMD has not filed a “loss claim”
against State Auto and no lawsuit resulted in an excess judgment. What CMD–the
insured–relies upon as the basis for its bad faith claim is the litigation-related delays
pertaining to the investigating and settlement of the Evanses’ claim. While those delays
clearly impacted the repair of the subject property and therefore effected the Evanses, the
delays did not result in any bad faith damages that are recoverable by CMD. Importantly,
State Auto defended CMD throughout the underlying litigation under the terms of the
controlling CGL policy and it fully indemnified CMD.
The State Auto policy that CMD purchased provides coverage for damages that
the insured is legally obligated to pay for “bodily injury” or “property damage” that CMD
causes others and not for losses that CMD sustains itself. Because the CGL policy was
not procured for the purpose of covering losses directly sustained by the insured, it stands
to reason that there is no basis for a first-party bad faith claim. In a nutshell, CMD
cannot assert a “loss claim” under its CGL policy from which a bad faith claim could
flow. As a result, CMD is simply “borrowing” a claim that could only belong to the
1
See W.Va. Code § 33-11-4a (a) (2011) (providing that third-party claimant may not
bring private cause of actions for unfair claims settlement practice).
2
See State ex rel. Brison v. Kaufman, 213 W.Va. 624, 634, 584 S.E.2d 480, 490 (2003)
(Davis, J., concurring).
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Evanses in an attempt to obtain relief for a purported claim of injury to itself. What the
majority has unwittingly allowed by not granting the requested writ of prohibition is the
effective sanctioning of a third-party bad faith claim–a claim that is statutorily
prohibited.3
In stating that CMD has asserted a proper first-party bad faith claim upon which
relief can be granted, the trial court failed to cite any authority. I submit that the trial
court and the majority erred in analyzing the framework of bad faith law. CMD has
wholly failed to plead a claim that is founded on State Auto’s violation of its duty to act
in good faith and deal fairly with its insured. See Noland v. Virginia Ins. Reciprocal, 224
W.Va. 372, 386, 686 S.E.2d 23, 27 (2009). Not only does CMD lack the predicate basis
for asserting a first-party bad faith claim under its CGL policy, but it has failed to identify
what damages it incurred as a result of the litigation-related delays.4 As a result, CMD
will necessarily receive a windfall if its bad faith claim is permitted to proceed and
recovery ultimately ensues.
Because I firmly believe this state’s bad faith jurisprudence has been tortured to
create a non-existent first-party bad faith claim under the facts of this case,5 I respectfully
dissent.
3
See supra note 1.
4
State Auto fully paid CMD’s attorney’s fees in the amount of $52,757.54.
5
I further believe that the one-year statute of limitations for filing a bad faith claim had
expired by the time CMG filed its third-party complaint on March 20, 2012.
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