In this contract case, Baltimore Scrap Corporation ("Baltimore Scrap"), a scrap metal recycling business, has filed suit against Executive Risk Specialty Insurance Company ("Executive Risk") and RLI Insurance Company ("RLI"), alleging that defendants wrongfully denied insurance coverage "for a series of thefts that occurred at one of its scrap yards." ECF 1 (the "Complaint"), ¶ 1.
On October 11, 2018, Executive Risk moved to dismiss Count II of the Complaint, pursuant to Fed. R. Civ. P. 12(b)(6). ECF 16.
No hearing is necessary to resolve the Motion. Local Rule 105.6. For the reasons that follow, I shall grant the Motion (ECF 16).
I. Factual Background
Baltimore Scrap "purchases scrap metal from industry, government, auto salvage yards, demolition contractors, and farms, as well as from the general public." Id. ¶ 7. The Complaint lays out one of the ways in which Baltimore Scrap purchases scrap from a customer, id. ¶ 8: "[A]n individual drives into the facility, has his or her vehicle weighed upon entry, receives instructions to drop the metal being purchased by Baltimore Scrap at a particular area of the scrapyard, and then returns to have the vehicle weighed again." Id. Then, "the customer receives a ticket with a value that is based upon the type of material in the load and the weight difference of their vehicle at departure." Id. The ticket is "scanned by the customer at an ATM-like machine onsite, in exchange for cash." Id.
On October 24, 2014, a Baltimore Scrap employee "discovered that a regular customer, Kenneth Grimes, entered the yard with a loaded truck, had the truck weighed by the company scales, but then instead of dropping the metal within the yard, proceeded to drive out a back gate." Id. at 9. About 30 minutes later, Mr. Grimes "returned to the yard through the back gate with an empty truck." Id. When Mr. Grimes "attempt[ed] to weigh-out with the empty truck" to receive compensation for the scrap, the employee "escorted" Mr. Grimes "off the premises." Id.
After reviewing footage from "security cameras [that] were first installed at the yard in July 2014," Baltimore Scrap discovered that "over a period of three months, Mr. Grimes entered the yard 23 times with a full truck, and after having the truck weighed, drove out a back gate on the property without unloading scrap." Id. ¶ 10. Each time, he "returned to the yard, and had his truck weighed again so that he was being paid for scrap that he was stealing from the yard." Id. In each instance, Mr. Grimes signed a "slip on behalf of his employer, Otis Elevator[.]" Id. ¶ 11. The Complaint asserts that "over the course of those 23 transactions," Grimes "was paid approximately $23,000 for material he did not leave at the yard." Id. Further, "Otis Elevator has confirmed that it did not receive any money from Mr. Grimes for the Baltimore Scrap tickets, and had no knowledge of Mr. Grimes's activity." Id.
As a result of the employee's discovery, the State of Maryland charged Mr. Grimes with a theft offense, and he was subsequently convicted. ECF 1, ¶ 12. As a part of his sentence, the court ordered payment of restitution, which plaintiff claims has since been paid. Id.
However, Baltimore Scrap "reviewed all of its records for payment for Mr. Grimes from the time that he was hired by his employer, Otis Elevator, in 2011." Id. ¶ 13.
Thereafter, "Baltimore Scrap brought a civil suit for fraud against Mr. Grimes." Id. ¶ 15. The Complaint asserts, id. ¶ 16: "On March 7, 2016, a Baltimore Circuit Court jury found Mr. Grimes liable for fraud, and a judgment was entered against him in the amount of $196,081.05 plus costs" (the "Grimes Loss"). And, "Mr. Grimes has begun making small payments on the judgment." Id. In pursuing legal action against Mr. Grimes, Baltimore Scrap avers that it has "incurred legal costs in excess of $55,000 ...." Id. ¶ 17.
At the relevant times, Baltimore Scrap "was covered under a comprehensive insurance program," including a "Crime Policy with Executive Risk" (ECF 1-1) and a "Commercial Property Coverage Policy with RLI" (ECF 1-2). ECF 1, ¶ 18.
The provision states, in relevant part, that Executive Risk "shall pay" Baltimore Scrap "for direct loss ... resulting from: (1) Robbery, Safe Burglary , or unlawful taking of Money or Securities committed by a Third Party ; or (2) actual destruction or disappearance of Money or Securities , within or from the Premises ...." Id. at 4. Coverage also included "(3) loss of or damage to Property which results from Robbery or attempted Robbery within the Premises ; ... committed by a Third Party ." Id.
Further, in the Section titled "Exclusions," the Executive Risk Policy contains the following provision in Exclusion (A)(11), id. at 10:
Voluntary Exchange or Purchase
loss due to an Insured knowingly having given or surrendered Money, Securities or Property in any exchange or purchase with a Third Party , not in collusion with an Employee , provided that this Exclusion (A)(11) shall not apply to otherwise covered loss ....
The Executive Risk Policy defines "Third Party" as "a natural person other than: (A) an Employee ; or (B) a natural person acting in collusion with an Employee ." Id. at 8. And, "Robbery" is defined as "the unlawful taking of Money , Securities or Property from the custody of an Employee or other person (except a person acting as a watchman, porter or janitor) duly authorized by an Organization to have custody of such Money , Securities or Property , by violence or threat of violence, committed in the presence and cognization of such Employee or other person." Id.
Under the Policy, "Theft" is defined as "the unlawful taking of Money, Securities or Property to the deprivation of: (A) an Insured , solely for the purposes of Insuring Clause (A), Employee Theft Coverage; or (B) a Client , solely for the purposes of Insuring Clause (I), Client Coverage." Id. Insuring Clause (A) provides that Executive Risk "shall pay ... for direct loss of Money, Securities or Property sustained by" Baltimore Scrap "resulting from Theft or Forgery committed by an Employee acting alone or in collusion with others."
The Executive Risk Policy also includes an "Expense Coverage" provision. Id. It requires Executive Risk to pay Baltimore Scrap for "Investigative Expenses resulting from any direct loss covered under Insuring Clauses...." Id.
Plaintiff maintains that "the Grimes Loss necessarily constitutes a loss" under both policies. ECF 1, ¶ 26. Further, plaintiff asserts that it submitted timely notice of the Grimes Loss to both insurers. Id. ¶ 28. However, according to plaintiff, the insurers have wrongfully denied coverage for the Grimes Loss." Id. ¶ 29.
Additional facts are included, infra .
II. Legal Standards
A. Rule 12(b)(6)
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 ,
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 ,
To survive a motion under Rule 12(b)(6), a complaint must contain facts sufficient to "state a claim to relief that is plausible on its face." Twombly ,
Nevertheless, mere " 'naked assertions' of wrongdoing" are generally insufficient to state a claim for relief. Francis v. Giacomelli ,
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. ,
Courts generally do not "resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses" through a Rule 12(b)(6) motion. Edwards ,
B. Exhibits
In evaluating the sufficiency of a complaint in connection with a Rule 12(b)(6) motion, a court ordinarily "may not consider any documents that are outside of the complaint, or not expressly incorporated therein ...." Clatterbuck v. City of Charlottesville,
In particular, a court may consider documents that are "explicitly incorporated into the complaint by reference and those attached to the complaint as exhibits." Goines ,
Of import here, "[w]hen the plaintiff attaches or incorporates a document upon which his claim is based, or when the complaint otherwise shows that the plaintiff has adopted the contents of the document, crediting the document over conflicting allegations in the complaint is proper." Goines ,
A court may also "consider a document submitted by the movant that was not attached to or expressly incorporated in a complaint, so long as the document was integral to the complaint and there is no dispute about the document's authenticity." Goines ,
The Executive Risk Policy (ECF 1-1) is attached to the Complaint and integral to it. Therefore, I may consider it.
Executive Risk attached its Denial Letter of May 1, 2015 (ECF 16-2) to its Motion. It is addressed to Jim Burnett of Baltimore Scrap and signed by Dominique Sena-DiDonato of Chubb & Son, a division of Executive Risk. Id. at 2, 4.
Notably, Baltimore Scrap did not attach the Denial Letter to the Complaint. Nevertheless, Executive Risk contends that this Court may consider the letter to resolve the Motion, "because Baltimore Scrap relied upon the letter to frame its complaint and state its cause of action." ECF 16-1 at 4 (citing Phillips v. LCI Int'l, Inc. ,
In my view, the Denial Letter undergirds the Complaint; it forms the basis of plaintiff's breach of contract claim against Executive Risk. For example, the Complaint's opening paragraph explicitly states that plaintiff "seeks damages resulting from the denials of insurance coverage ...." ECF 1, ¶ 1. And, the Complaint repeatedly asserts that defendants "wrongfully denied coverage for the Grimes Loss." Id. ¶¶ 1, 29, 36, 43. Further, plaintiff does not dispute the document's authenticity. See ECF 18 at 5.
Plaintiff cannot rely on the Denial Letter to assert its claim and then seek to foreclose the Court's consideration of it merely by failing to attach it. Therefore, at this juncture, I may consider the Denial Letter, without converting the motion to one for summary judgment, as it is integral to the Complaint. See Douglass v. NTI-TSS, Inc. ,
Of relevance here, the Denial Letter states, in pertinent part, ECF 16-2 at 2-4:
The purpose of this letter is to inform you of our coverage analysis with respect to this claim .... Based on our review, we have concluded that the claim is not covered under the Crime Coverage Part as more fully explained below.
According to the information provided to date, we understand the facts to be as follows: Baltimore Scrap Corp. purchases scrap from various entities. A truck driver from Otis Elevator presented his truck to be weighed on Baltimore's scale for purposes of determining the weight of the vehicle's contents for its sale to Baltimore. Once weighed, the Otis Elevator driver was instructed to empty the load contents at the back of Baltimore's facility and come back to the scale to get weighed. The driver would receive payment for the value of the difference in weight. Unbeknownst to Baltimore at the time, the driver did not unload the contents of the truck at the facility. Rather, he took the truck off the premises, unloaded the contents at a different location and returned with an empty truck. The driver for Otis Elevator did this several times before Baltimore discovered what had happened. Baltimore believes that the scheme caused it a loss of $240,000 approximately. The Otis Elevator driver was charged by authorities and has already repaid $23,000 to Baltimore Scrap Corp. There is no information to date to suggest a Baltimore Scrap Corp. employee may have been involved.
.... It appears from the information available to date that the loss in this case occurred in the course of an exchange of scrap for Money. Accordingly, we consider this to be a loss of Money for purposes of our coverage analysis. Although it does not appear that there was a loss of Property, it should be noted that the Premises Coverage will only afford coverage for a loss of Property where there is an attempted or actual Robbery on Premises. In this case, there was no violence or threat of violence involved in these circumstances. Nonetheless, regardless of whether this loss is considered a loss of Money or Property, the loss is excluded pursuant to Exclusion (A) (11) as it was due to a knowing surrender of Money or Property in exchange with the Otis Elevator driver.
Executive Risk Specialty concludes that there is no covered loss under the Crime Coverage Part. Executive Risk Specialty's position with respect to this matter is based upon the information provided to date. Should additional or new information become available or if you disagreewith Executive Risk Specialty's coverage position, please contact us immediately so we make [sic] take your submission under consideration....
C. Choice of Law
Jurisdiction in this Court is founded on diversity of citizenship.
"When choosing the applicable state substantive law while exercising diversity or supplemental jurisdiction, a federal district court applies the choice of law rules of the forum state." Ground Zero Museum Workshop v. Wilson ,
As to contract claims, Maryland applies the law of the state in which the contract was formed ("lex loci contractus "), unless the parties to the contract agreed to be bound by the law of another state. See, e.g. Cunningham v. Feinberg ,
It appears that the contract was formed in Maryland, although the parties do not makes this expressly clear. I shall apply Maryland law.
III. Discussion
Executive Risk has moved to dismiss Count II of the Complaint, pursuant to Fed. R. Civ. P. 12(b)(6), arguing that Baltimore Scrap "failed to timely file suit within the three-year statute of limitations as required by" C.J. § 5-101. ECF 16 at 1. According to Executive Risk, the "statute of limitations accrues no later than the date on which the insurer denies coverage," i.e. , May 1, 2015. ECF 16-1 at 2. Therefore, defendant argues that limitations expired on May 1, 2018.
Baltimore Scrap counters that limitations did not accrue "until the conclusion of the civil litigation [against Grimes] on May 7, 2016." ECF 18 at 6. According to plaintiff, only then was it "determined that there was a loss of money" and "the value of the loss was established."
As noted, the defense of limitations is ordinarily not considered in the context of a motion to dismiss. Edwards ,
In the ordinary course, Maryland law requires that "[a] civil action shall be filed within three years from the date it accrues unless another provision of the Code provides" otherwise. See C.J. 5-101. Statutes of limitations "ensure fairness to defendants by encouraging promptness in bringing claims, thus avoiding problems that may stem from delay...." Hecht v. Resolution Tr. Corp. ,
The Maryland Court of Appeals has explained: "Limitations statutes ... are designed to (1) provide adequate time for diligent plaintiffs to file suit, (2) grant repose to defendants when plaintiffs have tarried for an unreasonable period of time, and (3) serve society by promoting judicial economy." Georgia-Pacific Corp. v. Benjamin ,
In Maryland, actions for breach of contract are generally governed by Maryland's three-year statute of limitations. See Dual Inc. v. Lockheed Martin Corp. ,
An action typically accrues in Maryland at the time of the wrong, unless a judicial or legislative exception provides otherwise. Poole v. Coakley & Williams Const., Inc. ,
But, "[r]ecognizing the unfairness inherent in charging a plaintiff with
Under the discovery rule, "a plaintiff's cause of action accrues when the plaintiff knows or reasonably should have known of the wrong." Brown v. Neuberger, Quinn, Gielen, Rubin & Gibber, P.A. ,
A plaintiff is on inquiry notice when the plaintiff "possesses 'facts sufficient to cause a reasonable person to investigate further, and ... a diligent investigation would have revealed that the plaintiffs were victims of ... the alleged tort.' " Dual Inc. ,
Application of the discovery rule involves a two-prong test. The Maryland Court of Appeals has explained that the first prong, "sufficiency of the actual knowledge to put the claimant on inquiry notice," concerns "the nature and extent of actual knowledge necessary to cause an ordinarily diligent plaintiff to make an inquiry or investigation that an injury has been sustained." Benjamin ,
The second prong, "the sufficiency of the knowledge that would have resulted from a reasonable investigation," requires that after a reasonable investigation of facts, a reasonably diligent inquiry would have disclosed whether there is a causal connection between the injury and the wrongdoing. Benjamin ,
Executive Risk contends that plaintiff's cause of action accrued on May 1, 2015, when it denied coverage to Baltimore Scrap and, in doing so, allegedly breached the Executive Risk Policy. See ECF 16-2; ECF 16-1 at 2. In support of its position, Executive Risk relies, inter alia , on Hill v. State Farm and Casualty Company , RDB-15-00065,
In Hill , the Hills filed a breach of contract action against the insurer, seeking coverage under a homeowner's insurance policy. Id. at *1. The insurer moved to dismiss the action pursuant to Fed. R. Civ. P. 12(b)(6), asserting that plaintiffs failed to file suit within three years of the insurer's denial of coverage. Id. at *3. Judge Bennett granted the insurer's motion to dismiss on the basis that the plaintiffs received the denial letter more than three years before they filed suit. Id. He explained, id. :
In this case, State Farm allegedly breached the insurance contract on January 19, 2011, when it informed the Hills that it would deny coverage for any losses stemming from the fire.[ ] To avoid running afoul of the three-year statute of limitations, the Hills were required to file the present action before or on January 19, 2014. Yet, they did not file the subject Complaint until December 3, 2014, nearly eleven months after the expiration of the statutory period.... Due to this clear failure to comply with the Maryland state statute of limitations under Section 5-101, this breach of contract claim is time-barred. Accordingly, Plaintiffs' claim is DISMISSED WITH PREJUDICE.
Plaintiff counters that the Denial Letter "d[id] not trigger the running of the statute of limitation[s] because Baltimore Scrap's breach of contract claim did not accrue in May 2015." ECF 18 at 5. Rather, plaintiff maintains that the accrual date is May 7, 2016, when "Grimes was found liable for fraud and a judgment was entered against him in the amount of $196,081.05 plus costs." ECF 18 at 6.
Baltimore Scrap notes that, with regard to defendant's denial, Executive Risk relied on information available at that time. But, plaintiff points out that it now has new information. Id. at 5. Plaintiff posits, id. at 6: "Where there is underlying litigation that will resolve factual issues relevant to the insurance coverage dispute, the statute of limitations begins to run from the date of the resolution of the underlying case." Id. (citing Vigilant Ins. Co. v. Luppino ,
According to plaintiff, the Denial Letter "raised the factual issue as to whether Baltimore Scrap voluntarily parted with money" or, instead, whether Mr. Grimes defrauded Baltimore Scrap. ECF 18 at 6. In its view, limitations did not accrue until this factual issue was resolved in the underlying litigation brought by plaintiff against Mr. Grimes.
In addition, plaintiff argues that it was not required to file a declaratory judgment action to determine coverage before filing suit against Mr. Grimes. ECF 18 at 6-7. Plaintiff quotes Luppino ,
In Luppino , the plaintiff, Luppino, "was insured under a homeowner's liability insurance policy," which "provided coverage for property damage as well as personal liability." Luppino ,
In February 1989, third parties filed suit against Luppino.
Luppino defended the action at his own expense, resulting in a judgment against him that was upheld on appeal in September 1994.
With regard to the duty to indemnify, the Maryland Court of Special Appeals (Wilner, J.) held that "the duty did not arise, and thus Luppino's cause of action for breach of the duty did not accrue, until judgment was entered against Luppino in the underlying suit."
On the issue of whether the three-year statute of limitations barred plaintiff's cause of action for breach of the duty to defend, the Maryland Court of Appeals recognized a " 'continuation of events' " exception to the " 'strict date of the wrong rule of accrual.' "
Noting the disfavored nature of declaratory judgment actions to determine the breadth of coverage under a liability insurance policy, the court concluded that "the insured should not be prejudiced by his or her failure to seek a declaratory judgment prior to the trial of the underlying tort suit. Consequently, limitations should not begin to run against the insured because the insured failed to bring a pre-tort trial declaratory judgment action."
The Fourth Circuit recently distinguished Luppino in Curry v. Trustmark Insurance Company ,
In Curry ,
The district court found that not all of the plaintiff's claims were barred by limitations because the insurer "breached the contract each time [it] failed to pay benefits for a period during which Plaintiff was disabled." Curry v. Trustmark Ins. Co. , JKB-11-2069,
The Fourth Circuit disagreed. It defined the issue as "whether the disability benefits [were] 'owed in the first place.' " Id. at 881 (citation omitted). Because the alleged breach of contract arose from the insurer's denial that it owed the plaintiff any benefits at all, the Curry Court determined that the breach was not a continuing one and the plaintiff's claim accrued at the point of the initial denial, i.e. , when the insurer denied additional benefits. Id.
Such an analysis leads to the same conclusion here. As Executive Risk argues, "Baltimore Scrap knew of its right to file suit in May 2015, but chose not to do so. Instead, it chose to sue another party. That action did not trigger a duty to defend, as in Luppino ." ECF 19 at 8.
If plaintiff had the right to sue defendant when it received the Denial Letter, it follows that it must also have been subject to the statute of limitations as of that time. See Poffenberger v. Risser ,
Plaintiff's cause of action for breach of contract accrued on May 1, 2015, when Executive Risk notified plaintiff of the denial of coverage. See ECF 16-2. Limitations was not tolled merely because the insurer indicated that the insured should contact the insurer with "additional or new information ...." ECF 16-2 at 4. Refusal to pay a benefit "when due is sufficient to constitute a breach." Mobley v. New York Life Ins. Co. ,
Because plaintiff did not file suit until September 5, 2018, Count II is subject to dismissal based on limitations.
IV. Conclusion
For the reasons stated above, the Motion (ECF 16) is GRANTED. I shall dismiss Count II, with prejudice.
An Order follows, consistent with this Memorandum Opinion.
Notes
Subject matter jurisdiction is founded on diversity of citizenship, pursuant to
The Executive Risk Policy is labeled as Exhibit B but docketed as ECF 1-1, and the RLI Policy is labeled as Exhibit A but docketed as ECF 1-2.
RLI filed an Answer to the Complaint on March 7, 2019. ECF 24.
Given the procedural posture of this case, I must assume the truth of all factual allegations in the Complaint. See E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc. ,
The Complaint does not specify the amount of restitution.
The RLI Policy covered the period of 10/1/2012 through 10/02/2013, and it was subsequently renewed for 2013-2014 and 2014-2015. ECF 1, ¶ 19.