Riverport Ins. Co. v. C&M Indus., Inc.

CHARLES E. POSTON JUDGE

CHARLES E. POSTON JUDGE F. Nash Bilisoly
Dustin M. Paul
Vandeventer Black LLP
101 West Main Street, Suite 500
Norfolk, VA 23510 Christopher A. Abel
Willcox & Savage, PC
Wells Fargo Center
440 Monticello Avenue, Suite 2200
Norfolk, VA 23510 Richard J. Serpe
Law Offices of Richard J. Serpe PC
Crown Center, Suite 310
580 East Main Street
Norfolk, VA 23510 Henry P. Bouffard
Law Office of Henry P. Bouffard PC
440 Monticello Avenue, Suite 1827
Norfolk, Virginia 23510 Aurora N. Tulshan
John P. Orzel
Carrol McNulty Kull, LLC
P.O. Box 650
Basking Ridge, NJ 07920 Michael A. Varner
Brown Sims
1177 West Loop South
Tenth Floor
Houston, TX 77027 David N. Ventker
Marissa M. Henderson
Ventker & Warman, PLLC
101 West Main Street, Suite 810
Norfolk, VA 23510 Alan B. Rashkind
Furniss, Davis, Raskhind & Saunders, PC
6160 Kempsville Circle
Suite 341B
Norfolk, VA 23502 O.L. Gilbert
Gilbert, Albiston & Keller, PLC
Crown Center, Suite 330
580 East Main Street
Norfolk, VA 23510 William J. Carter
Kelly M. Lippincott
Carr Maloney, PC
2000 L Street NW, Suite 450
Washington, DC 20036 Paul R. Schmidt
Albert H. Poole
Poole Mahoney PC
4705 Columbus Street
Virginia Beach, VA 23462 Ralph Rabinowitz
Law Office of Ralph Rabinowitz
Town Point Center, Suite 204
Norfolk, VA 23510 Counsel:

This action is before the Court upon the demurrers of C&M Industries Inc., JNB Marine, Indemnity Insurance Company of North America, New York Marine & General Insurance Company, and Steadfast Insurance Company. Having considered the written submissions of counsel, the papers filed in this action, and the argument of counsel, the Court will overrule the demurrers. IINA's motion to stay this action will also be denied.

Facts and Procedural History

For familiar reasons, the facts will be viewed in the light most favorable to the plaintiff, taking all allegations of the complaint as true for purposes of adjudicating the demurrers. In August 2010, Elgin Stodghill was injured while working on a barge owned by JNB Marine (JNB) and chartered by C&M Industries (C&M). Stodghill filed a tort action in this Court against JNB and C&M seeking damages from the accident and pled alternatively that he was either a longshoreman or a Jones Act seaman. Riverport, C&M's insurer, initially filed a petition to intervene as a defendant in that action and the Court denied the prayer of that petition. In August 2012, Riverport filed the instant declaratory judgment action against C&M, JNB, and Stodghill seeking a determination of coverage under its policy with C&M as well as Stodghill's status as either a longshoreman or Jones Act seaman. Subsequently, the Court granted Stodghill's Motion to Join JNB's insurer, IINA, IINA's excess insurer, New York Marine (NYM), and Riverport's alleged excess insurer, Steadfast, in the declaratory judgment action. Stodghill then filed a counterclaim against Riverport and cross-claims against C&M, JNB, IINA, NYM, and Steadfast seeking a declaratory judgment declaring that he is entitled to payment on any judgment that may be recovered in the underlying tort action against C&M or JNB under the terms of various insurance policies issued by IINA, NYM, Steadfast, and Riverport. In response, C&M, JNB, IINA, NYM and Steadfast filed demurrers to Stodghill's cross-claims raising multiple issues. In brief, they argue that declaratory judgment is inappropriate for Stodghill's cross-claims. Each party offers either its own version of this argument or adopts the arguments of the other defendants in its demurrer.

Discussion

When ruling on a defendant's demurrer, the court interprets the facts as they are alleged in the pleadings in the light most favorable to the plaintiff and makes all reasonable inferences in the plaintiff's favor. Tronfeld v. Nationwide Mut. Ins. Co., 272 Va. 709, 713, 636 S.E.2d 447, 449 (2006) (citing Ward's Equipment Inc. v. New Holland N. America, Inc., 254 Va. 379, 382, 493 S.E.2d 516, 518 (1997)). The purpose of a demurrer is to test whether the plaintiff's claim is legally sufficient to support the relief requested. Id. (citing Welding, Inc. v. Bland County Service Authority, 261 Va. 218, 226, 541 S.E.2d 909, 913(2001)). Stodghill's cross-claims allege facts that are legally sufficient to support the relief he requests.

I. C&M & JNB's Demurrer to Stodghill's Cross-Claims

C&M and JNB rely on Charlottesville Area Fitness Club Operators Ass'n v. Albemarle Cnty. Board of Supervisors, 285 Va. 87, 737 S.E.2d 1 (2013), to argue that this Court lacks jurisdiction over Stodghill's cross-claim. They contend that because there is no justiciable controversy, declaratory judgment is inappropriate. In Albermarle County, a private association of fitness clubs brought declaratory judgment actions against county and state officials seeking a declaration that agreements entered into for the development of a recreation center were not valid. Id. at 95-96. The Supreme Court held that a justiciable controversy did not exist because the party seeking a declaratory judgment was a third party challenging governmental action without having statutory authorization to do so. Id. at 105. That holding addresses an issue inapposite to the one presented in the case at bar.

The issue now before the Court is whether a justiciable controversy exists for Stodgill's cross-claims against C&M and JNB, neither of which is a governmental entity but rather alleged tortfeasors in the underlying tort action. It is well settled that insurance providers raise a justiciable controversy when they seek a declaratory judgment to determine coverage issues under a written instrument. See, e.g., Gov't Employees Ins. Co. v. Moore, 266 Va. 155, 161, 580 S.E.2d 823, 826 (2003); Reisen v. Aetna Life & Cas. Co., 225 Va. 327, 336, 302 S.E.2d 529, 534 (1983). However, the issue here is whether there is a justiciable controversy concerning rights under a policy for a tort victim's cross-claim against the tortfeasor in an action that originated when the insurance provider brought the declaratory judgment action. It would be difficult to hold that no controversy exists to support the cross-claim when a controversy clearly exists for Stodghill's other cross-claims against IINA and NYM. Erie Insurance Group v. Hughes holds that when all parties to the controversy cannot be bound by a judgment, a court will lack jurisdiction to make a declaratory judgment because if all parties are not included in a declaratory judgment action, they will later be able to assert the same coverage issues that were litigated in an earlier action against the insurance carriers. 240 Va. 165, 169-70, 393 S.E.2d 210, 212 (1990). JNB is a party to the controversy regarding coverage between Stodghill and IINA. Likewise, C&M is a party to the controversy regarding coverage between Stodghill and Riverport. If, then, a justiciable controversy exists for Stodghill's other cross-claims against IINA, NYM, and Steadfast, it is necessary that C&M and JNB be bound to any declaratory judgment action brought by Riverport or Stodghill. Otherwise, the alleged tortfeasors in this case could re-litigate the same coverage issues against the insurance carriers in a later proceeding.

C&M and JNB also demur to Stodghill's cross-claims against them by arguing that Stodghill fails to state a claim upon which relief can be granted. The Virginia Declaratory Judgment Act states:

In cases of actual controversy, circuit courts within the scope of their respective jurisdictions shall have power to make binding adjudications of right, whether or not consequential relief is, or at the time could be, claimed and no action or proceeding shall be open to objection on the ground that a judgment order or decree merely declaratory of right is prayed for. Controversies involving the interpretation of deeds, wills, and other instruments of writing, statutes, municipal ordinances and other governmental regulations, may be so determined, and this enumeration does not exclude other instances of actual antagonistic assertion and denial of right.

Va. Code § 8.01-184 (2013). In a declaratory judgment action, it is not necessary to seek "consequential relief," because the purpose of that statute is to allow for the determination of the rights of parties to "guide parties in their future conduct in relation to each other". Liberty Mut. Ins. Co. v. Bishop, 211 Va. 414, 421, 177 S.E.2d 519, 524 (1970). In other words, to state a colorable claim for a declaratory judgment, Stodghill must assert that a justiciable controversy exists and that a declaratory judgment will provide "preventive relief to guide the conduct of the parties in future litigation. Miller v. Highland Cnty., 274 Va. 355, 370-371, 650 S.E.2d 532 (Va. 2007). For Stodghill to state a colorable claim, then, he must allege that he seeks determination of his rights under various insurance policy instruments. He has done so.

II. IINA and NYM's Demurrer to Stodghill's Cross-Claims

IINA filed a demurrer to Stodghill's cross-claim and argued that Stodghill lacks standing for a declaratory judgment action against them. Alternatively, IINA asked for this action to be stayed pending resolution of the underlying tort case. NYM filed a demurrer arguing Stodghill lacks standing to bring a declaratory judgment action against them, that Stodghill's cross-claim does not grow out of the declaratory judgment action, and that there is no controversy because NYM's policy will not be implicated regardless of whether Stodghill was a longshoreman or Jones Act Seaman. Also, IINA adopts by reference several of NYM's arguments. Each of these arguments is addressed below.

First, IINA and NYM's demurrers question whether a declaratory judgment regarding the interpretation of rights under various insurance policies is appropriate when the judgment sought includes a determination of a disputed fact at issue in a pending tort action. The Virginia Supreme Court has held that a court must exercise "great care and caution" when entering a declaratory judgment. USAA Cas. Ins. Co. v. Randolph, 255 Va. 342, 346, 497 S.E.2d 744, 746 (1998). Further, declaratory judgment is inappropriate when a court is asked to determine a factual dispute that can be resolved in other available proceedings. Id. at 346-47. For example, in Randolph, a worker sought a declaration of whether the workers compensation bar would prevent recovery when he was accidentally shot in an employee parking lot after work. Id. at 345. In that case, the declaratory judgment action was sought to determine the factual issue of whether the injury arose in the course of employment. Resolution of that issue would then determine another disputed question of whether the workers compensation bar applied. Id. The Virginia Supreme Court held that the circuit court did not have authority to render a declaratory judgment in this case because such a judgment would only resolve a factual issue determining liability without determining any rights under a written policy. Id. at 347-48. Nevertheless, according to the Randolph court, if a declaratory judgment resolves a question of coverage and interpretation of rights under an insurance policy, then the court has authority to issue a declaratory judgment. Id. at 348.

In Reisen v. Aetna Life & Casualty Co., an insurance provider sought a declaratory judgment to determine if an action was intentional, a factual question that would determine an insurance coverage issue. 225 Va. 327, 332, 302 S.E.2d 529, 531-32 (1983). The court in Reisen found that determination of the factual issue at the declaratory judgment stage did not render the declaratory judgment action inappropriate. Id. at 336. Instead, the Reisen court found declaratory judgment to be appropriate because the court was concerned that the insurer would re-litigate the same coverage issue after judgment in the underlying tort action. Id.

This Court has already applied the rules of Randolph and Reisen while addressing the issue of whether an injured third party may bring a declaratory judgment action against an alleged tortfeasor's insurance provider even when the declaratory judgment action will determine a factual issue that could be resolved in future litigation. Nottingham v. Caviggiola, 67 Va. Cir. 86 (2005). In Nottingham, a Penske truck leased or owned by Howmet Transport Service rear-ended another driver. Id. at 86. The injured driver sued the truck driver in federal court, and a key disputed issue in that case was whether Penske or the truck owner would be vicariously liable for the truck driver's negligent actions. Id. Simultaneously, the factual question of vicarious liability arose in a declaratory judgment action brought by the injured driver against various liability insurance carriers to determine his rights under the policies. Id. Referencing Reisen, this Court held that declaratory judgment was proper, "despite the fact that the critical factual issue to be litigated is a material fact in the underlying tort action." Id. at 90. In Nottingham, this Court distinguished Randolph and determined that there was an actual controversy, holding that, "Nottingham is asking the court to interpret various insurance policies so that parties can be guided in their future conduct in relation to each other." Id. Here, as in Nottingham, this Court is being asked to issue a declaratory judgment to determine a factual issue pending in an underlying tort action, the resolution of which will determine the rights of the parties under various insurance policy agreements.

Citing United Services Auto. Ass'n v. Nationwide Mutual Insurance Co., 218 Va. 861, 241 S.E.2d 784 (1978), IINA urges that Stodghill lacks standing to bring a declaratory judgment action because the underlying tort action must come to judgment first. That case involved a subrogation action brought by an uninsured motorist carrier against the third-party insurer of a tortfeasor after the uninsured motorist carrier and the tort victim had worked a settlement. Id. at 861-65. The statute of limitations period for the tort victim to bring an action against the alleged tortfeasor had lapsed, and the third-party insurer was not a party to the settlement agreement between the victim and her uninsured motorist carrier. Id. Because the alleged victim never instituted an underlying tort action, the court held that the uninsured motorist carrier could not subrogate rights she did not have to the uninsured motorist carrier. Id. at 868. IINA's reliance on Nationwide is misplaced because that case dealt with the issue of whether there was standing for a subrogation action rather than a declaratory judgment action. Here, Stodghill is an alleged tort victim seeking declaratory judgment to determine his rights under various insurance policies to guide the future conduct of the parties.

IINA argues that in Reisen a justiciable controversy was found to exist because the alleged tortfeasor offered to settle, whereas here, there has been no settlement offer. In Reisen, the tort plaintiff's offer to settle was within the policy limits while the initial complaint alleged damages in excess of those limits. Id. at 335. The settlement offer raised a conflict between the insurer's duty to its insured and the insurer's own interests, and a declaratory judgment action resolved this conflict. Id at 335. In other words, insurer had a duty to act in good faith in negotiating the best possible settlement for its insured, but this duty conflicted with its own interest to have the claim settle within the policy limits. However, it was not essential in Reisen that a settlement offer was made before a justiciable controversy was found to exist. In fact, the court there noted that the facts surrounding the settlement offer, "illustrate the wisdom of declaratory judgment here." Id. Indeed, in the present case, although no offer to settle may yet have been made, a determination of coverage serves the purpose of the declaratory judgment statute, "so that parties can be guided in their future conduct in relation to each other and avoid the risk of action that would jeopardize their respective interests." Nottingham, 67 Va. Cir. at 90 (construing Va. Code § 8.01-184).

NYM also argues that since the insurers here have not denied coverage, even though they are defending under a reservation of rights, no justiciable controversy exists. This is a fine distinction that leads to an absurd result. If this Court were to hold that a justiciable controversy for declaratory judgment exists only when there is outright denial of coverage, then insurers could avoid declaratory judgment proceedings at their pleasure by reserving their rights rather than denying coverage. In fact, in Reisen the insurer did initially refuse to defend, but after refusing an offer to settle, the insurer proceeded to defend under a full reservation of rights. Reisen, 225 Va. at 330, 302 S.E.2d at 530.

NYM, and IINA by adopting NYM's arguments, also assert in their respective demurrers that Stodghill lacks standing for a declaratory judgment because Virginia lacks a direct action statute permitting an injured third party to sue an insurance company directly. The case law in Virginia does not directly address the issue of whether lack of a direct action statute precludes all actions by injured third parties against an alleged tortfeasor's insurance carrier. See Martirosov v. Shenandoah Flight Servs., Inc., 64 Va. Cir. 163, 167-72 (2004) (holding that an injured third party may bring a declaratory judgment action against an alleged tortfeasors insurer, and pointing out that the Virginia Supreme Court has granted declaratory relief in similar cases). In constructing their argument regarding direct action statutes, NYM and IINA rely in large part on cases that do not address the present issue. IINA relies on United Services Auto. Ass'n v. Nationwide Mutual Insurance Co., but that case addresses a subrogation action rather than a declaratory judgment action. 218 Va. at 861-62, 241 S.E.2d at 785-86. Richmond, Fredericksburg & Potomac R.R. Co. v. Hughes-Keegan, Inc., also cited by IINA, does not involve a declaratory judgment action either. 207 Va. 765, 152 S.E.2d 28 (1967). The more telling authority, though, shows that the Supreme Court of Virginia has approved of granting declaratory relief when an injured third party has brought a declaratory judgment action against an alleged tortfeasor's insurer. Craig, 259 Va. at 533.

NYM, and IINA by adopting NYM's arguments, also assert that Stodghill's cross-claim is deficient because it does not "grow out of Riverport's declaratory judgment action. Va. Sup. Ct. R. 3:10(a). Briefly, NYM argues that Stodghill's declaratory judgment action does not implicate any coverage issues other than those between Stodghill, Riverport and JNB. According to Rule 3:10(a),

A defendant may, at the defendant's option, plead as a cross-claim any cause of action that such defendant has or may have against one or more other defendants growing out of any matter pled in the complaint. Such cross-claim may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.

Id
. Here, Riverport is seeking a determination of Stodghill's status as a longshoreman or Jones Act seaman and a determination of its coverage under its policy with C&M. Stodghill's cross-claims against IINA and NYM seek a determination of rights under additional policies issued by them to JNB, policies that will be affected by a determination of Stodghill's status as a longshoreman or Jones Act seaman because they may be triggered if the damages in the underlying tort action exhaust the underlying defendant's principal policies. NYM and IINA's claims that their policies are not implicated because the facts here fall within exclusions are not appropriate for resolution on demurrer, because these claims ask this Court to resolve a factual question. Therefore, Stodghill's cross-claims against IINA and NYM grow out of Riverport's petition because IINA issued a liability policy to JNB that could be implicated in the underlying tort action and, if the damages there exhaust the IINA policy, NYM's would be triggered as well. NYM argues that it is "entitled to judgment on the pleadings" because the excess policy has not yet been, "nor could it ever be" implicated. The first portion of this argument essentially states that the underlying tort case must come to judgment and that judgment must exceed the limits of the underlying policy before NYM's policy is implicated in the declaratory judgment action. This theory is contrary to the principles already addressed, showing that an underlying tort case need not be adjudicated before a court may determine potential coverage under an insurance policy. The second portion of this argument is that an employee exclusion policy applies, barring coverage. Availability or unavailability of coverage under such exclusion is a factual determination not appropriate for decision on demurrer. This Court, then, cannot, as a matter of law, conclude that the longshoreman or Jones Act seaman determination will not affect the rights of NYM.

Finally, the parties' conduct in future litigation will certainly be guided by a determination of the rights under various insurance policies by this declaratory judgment action. Staying these proceedings until the underlying tort action comes to judgment does not serve this end, and, indeed, may encourage further litigation.

Steadfast's Demurrer and Amended Demurrer

Steadfast bases its demurrer and amended demurrer on the fact that it did not provide written consent to an endorsement on which coverage is provided in the underlying policy from Riverport to C&M. The application of Steadfast's excess policy to Riverport's policy involves questions of fact that are not properly determined on demurrer.

Conclusion

This Court finds that a justiciable controversy exists between the parties and that declaratory judgment is appropriate. Accordingly, the defendants' demurrers will be OVERRULED and IINA's motion to stay will be DENIED.

Counsel are requested to endorse the attached order and return it to the Court not later than noon on December 16, 2013.

Sincerely,

/s/

Charles E. Poston

Judge CEP/CAC/BMW/nm
Enc. IN THE CIRCUIT COURT OF THE CITY OF NORFOLK RIVERPORT INSURANCE COMPANY, Plaintiff, v. C & M INDUSTRIES, et al., Defendants. ORDER DISPOSING OF DEMURRER AND MOTION TO STAY

For the reasons stated in the Court's letter opinion of November 25, 2013, the Court is of the opinion that the Defendants' demurrers should be overruled and that the Defendant Indemnity Insurance Company of North America's motion to stay this proceeding should be denied.

The Defendant's objections to the entry of this order are noted and preserved for the reasons stated in their submissions in support of their respective positions.

Pursuant to Rule 1:13 endorsements of counsel are waived.

Let the Clerk forward certified copies of this Order to counsel for the parties.

IT IS SO ORDERED.

ENTERED: __________

/s/_________

Charles E. Poston, Judge /s/_________
Paul R. Schmidt, Esq.
Albert H. Poole, Esq.
pschmidt@poolemahoney.com
apoole@poolemahoney.com /s/_________
F. Nash Bilisoly, Esq.
Richard H. Ottinger
nbilisoly@vanblk.com
rottinger@vanblk.com /s/_________
Alan B. Rashkind, Esq.
arashkind@furnissdavis.com /s/_________
Ralph Rabinowitz, Esq.
rrab@rrablaw.com /s/_________
Richard J. Serpe, Esq.
rserpe@serpefirm.com /s/_________
William J. Carter, Esq.
Kelly M. Lippincott, Esq.
wjc@carrmaloney.com
kml@carrmaloney.com
/s/_________
Aurora N. Tulshan, Esq.
John P. Orzel
atulshan@cmk.com

jorzel@cmk.com
/s/_________
David N. Ventker, Esq.
Marissa M. Henderson, Esq.
dventker@ventkerlaw.com
mhenderson@ventkerlaw.com /s/_________
Henry P. Bouffard, Esq.
henry@hbouffardlaw.com /s/_________
O. L. Gilbert, Esq.
olg@gilbertlaw.com /s/_________
Christophe A. Abel, Esq.
cabel@wilsav.com /s/_________
Mark A. Varner, Esq.
m.varner@brownsims.com