Slip Opinion
M.D. Fla.Mar 25, 2015Background
- First American issued title insurance policies for a borrower and lender related to a power plant project; First American then entered a reinsurance agreement with Old Republic to assume a share of First American’s liability under those Title Policies.
- Contractor mechanic’s liens were recorded, leading to claims under the Title Policies; First American settled the claims for $41 million and sought Old Republic’s contractual share under the reinsurance agreement.
- Old Republic paid under a full reservation of rights and sued First American for breach of contract, rescission, negligence, unjust enrichment, and declaratory relief.
- First American moved to dismiss Count III (negligence) under Fed. R. Civ. P. 12(b)(6), arguing West Virginia’s “gist of the action” doctrine bars tort claims that arise only from contractual duties.
- Old Republic argued (1) a tort duty independent of the contract exists based on insurers–reinsurers’ good-faith obligations and industry custom, and (2) it pleads negligence in the alternative.
- The Court denied the motion to dismiss Count III, holding Old Republic sufficiently pleaded a plausible tort duty independent of the contract (grounded in industry/social-policy duties) and permissibly pleaded alternative theories.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Old Republic’s negligence claim is barred by West Virginia’s gist-of-the-action doctrine | Negligence arises from a tort duty independent of the reinsurance contract (industry good-faith and social policy); pleaded in the alternative | Any duty arises solely from the reinsurance contract, so tort claim is duplicative and barred | Denied dismissal: complaint plausibly alleges a tort duty independent of the contract and negligence is pleaded alternatively |
| Whether duties between insurer and reinsurer can supply a non‑contractual tort duty | Industry practice and law recognize reinsurer reliance on primary insurer and an implied duty of good faith | The contract governs the parties’ duties; no extra-contractual tort duty exists here | Court found industry practice plausibly supports an independent tort duty at pleading stage |
| Whether pleading alternative/inconsistent claims is permissible where gist-of-action might bar tort claims | Federal Rule 8(d) allows alternative pleading; rescission could eliminate the contractual basis | If contract remains effective, tort would duplicate contract and be barred | Alternative pleading permits tort claim to proceed at this stage; dismissal would be premature |
| Appropriateness of dismissal at 12(b)(6) stage on gist-of-action grounds | Dismissal premature because factual development may show tort duty independent of contract | Argues pure legal insufficiency warrants dismissal now | Court exercised caution and declined dismissal, noting factual development is needed |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (application of plausibility standard)
- BP Prods. N. Am., Inc. v. Giant Oil, Inc., 545 F. Supp. 2d 1257 (low threshold to survive motion to dismiss)
- Ancata v. Prison Health Servs., Inc., 769 F.2d 700 (11th Cir.) (pleading sufficiency principles)
- Lockhart v. Airco Heating & Cooling, Inc., 567 S.E.2d 619 (W. Va. 2002) (West Virginia articulation that tort will not arise from contract unless independent)
- Gaddy Eng’g Co. v. Bowles Rice McDavid Graff & Love, LLP, 746 S.E.2d 568 (W. Va. 2013) (explaining gist-of-the-action doctrine factors)
- Unigard Sec. Ins. Co. v. North River Ins. Co., 4 F.3d 1049 (2d Cir. 1993) (recognizing reinsurer–insurer duties and good-faith principles)
- Am. Bankers Ins. Co. of Fla. v. Northwestern Nat’l Ins. Co., 198 F.3d 1332 (11th Cir.) (reinsurance relationship duties recognized)
- Employers Reinsurance Co. v. Massachusetts Mut. Life Ins. Co., 654 F.3d 782 (8th Cir.) (reinsurance duties and good-faith principles)