ARCH Ins. Co. Eur. v. Reilly

ARCH INSURANCE COMPANY EUROPE LTD. N/K/A ARCH INSURANCE UK LTD., et al., Plaintiffs, v. THOMAS K. REILLY, Defendant.

Civil Action No. 20-2080

United States District Court, D. New Jersey

October 8, 2021

Not for Publication

OPINION

JOHN MICHAEL VAZQUEZ, U.S.D.J.

Presently before the Court is Defendant Thomas K. Reilly's motion to dismiss the Amended Complaint. D.E. 27. Plaintiffs filed a brief in opposition, D.E. 28, to which Defendant replied D.E. 32. The Court reviewed the parties' submissions^[1] and decided the motion without oral argument pursuant to Fed.R.Civ.P. 78(b) and L. Civ. R 78.1(b). For the reasons set forth below, Defendant's motion is GRANTED in part and DENIED in part.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Defendant is the former Chief Executive Officer of non-party Chemoil Energy Ltd. (“Chemoil”).^[2] Am. Compl. ¶ 51-52. Chemoil is party to the Directors, Officers and Company Liability Insurance Policy (the “Policy”), which is at issue here. Id., Ex. A. Plaintiffs plead that Plaintiff DUAL Corporate Risks LTD. (“DUAL”) is the Managing General Agent (“MGA”) of the Policy. As the MGA, DUAL issued the Policy to Chemoil, and is responsible for handling claims under the Policy. Id. ¶¶ 35-36, 39, 47, 50. DUAL, however, does not make any coverage determinations and has no financial obligations under the Policy. Id. ¶¶ 44, 48-49. While Plaintiffs plead that DUAL is the MGA, they acknowledge that DUAL is listed as the insurer in the Policy. Id. ¶ 45, Ex. A at 13.

The remaining Plaintiffs, Arch Insurance Company (Europe) Ltd. n/k/a Arch Insurance (UK) Ltd. (“Arch”); Liberty Mutual Insurance SE (“Liberty”); Hiscox Underwriting Ltd. (“Hiscox”); Barbican Corporate Member Limited (“Barbican”); and Endurance at Lloyd's Limited (UK) (“Endurance”), “are each insurance entities operating within the London insurance market.” Id. ¶ 34. Plaintiffs refer to these parties collectively as the “Capacity Providers.” Id. ¶ 19. The Capacity Providers each subscribed to underwrite a specific percentage of the underwritten risk of the Policy. The percentages are set forth in a section of the Policy referred to as the “Written Line” or the “Security Details.” Id. ¶¶ 40-42, Ex. A at 7. The Policy clearly states that each Capacity Provider is only liable for the proportion of liability that it underwrote and that the Capacity Providers' liability is several, not joint. Id. ¶ 41, Ex. A at 5. Finally, Plaintiffs allege that the Capacity Providers collectively make coverage determinations or decisions to pay claims under the Policy and communicate these decisions to DUAL. Id. ¶ 48.

Defendant Reilly resigned as CEO of Chemoil in 2014 and initiated an arbitration proceeding against Chemoil regarding his right to severance payments. Id. ¶ 52. Reilly personally paid for the arbitration and did not initially seek coverage under the Policy for the fees and costs he incurred through the arbitration. Id. ¶¶ 53-54. Plaintiffs plead that Reilly did not seek coverage because he knew his claims were not covered by the policy. Id. ¶ 54. Chemoil subsequently asserted counterclaims against Reilly. As a result, in March 2017, Reilly sought coverage for defense and indemnification of the counterclaims. Id. ¶¶ 55-56. “Plaintiffs agreed that Reilly was an insured under the Policy with respect to the Chemoil [c]ounterclaims only.” Id. ¶ 57. Thus, the Capacity Providers, through DUAL, agreed to pay fees and costs incurred to defend Reilly against the counterclaims, and Reilly continued to personally pay for the fees and costs associated with his affirmative claims. Id. ¶ 61.

Reilly initially sought approximately $1.48 million dollars from Plaintiffs, claiming that all his attorneys' fees and costs were incurred through defense of the counterclaims. Id. ¶ 62. The Capacity Providers, through DUAL, disagreed, and paid Reilly approximately $888, 000. Id. ¶¶ 63-64. DUAL allegedly told Reilly that this was an “interim payment” and that any further payments would remain subject to negotiation between the parties. Id. ¶ 67. Reilly accepted the $888, 000 payment. Id. ¶ 66.

In January 2018, the arbitration panel rendered a decision that was “largely in favor of Reilly” and “highly critical” of Chemoil's conduct. Id. ¶ 68. In addition, the arbitration panel permitted Reilly to make an application to recover all his legal fees and costs. Id. ¶ 71. Reilly submitted a fee application seeking reimbursement of approximately $2.1 million, which included fees and costs he incurred as to the affirmative claims and counterclaims. Id. ¶ 75. Plaintiffs allege that Reilly's fee application included the $888, 000 payment from Plaintiffs. Id. ¶¶ 79-80.

Reilly and Chemoil subsequently settled the fee claim for $1.2 million. Plaintiffs were excluded from Reilly and Chemoil's settlement negotiations. Id. ¶¶ 82-83, 89. The Capacity Providers, again through DUAL, objected to any settlement without their input and consent, and advised Reilly that pursuant to the Policy, he could not settle the fee claim without the Capacity Providers' consent. Id. ¶¶ 84-86. The Capacity Providers also told Reilly that they did not consent to the proposed settlement, but Reilly moved forward despite their objections. Id. ¶¶ 88-89. Plaintiffs contend that the settlement deprived them of their rights under the Policy and specifically, of their right to recoup the $888, 000 payment to Reilly. Id. ¶¶ 90-91. Despite Plaintiffs demands, Reilly has not reimbursed Plaintiffs for any portion of the $888, 000 payment. Id. ¶¶ 92-93.

During the parties' discussions about Reilly's settlement with Chemoil, Reilly brought suit against DUAL seeking a declaratory judgment stating that he is not required to reimburse DUAL under the Policy (the “Reilly Action”). D.E. 1, Civ. No. 18-16836 (D.N.J. Dec. 4, 2018). Reilly also asserted claims for breach of contract and breach of the duty of good faith and fair dealing. Id. DUAL asserted counterclaims for a declaratory judgment stating that, pursuant to the Policy, Reilly was not entitled to coverage for any of his affirmative claims, in addition to counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment.^[3] D.E. 9, Civ. No. 18-16836 (D.N.J. Jan. 11, 2019). The Capacity Providers then initiated the instant matter, seeking to recover the $888, 000 payment. Specifically, the Capacity Providers assert a declaratory judgment claim, breach of contract claims, and an unjust enrichment claim. D.E. 1.

On June 9, 2020, DUAL and the Capacity Providers filed a letter in the Reilly Action requesting that the two matter be consolidated. D.E. 75, Civ. No. 18-16836 (D.N.J. June 9, 2020). On July 28, 2020, Judge Mannion consolidated the matters for discovery purposes. D.E. 76, Civ. No. 18-16836 (D.N.J. July 28, 2020). In this matter, on March 20, 2021, the Capacity Providers were granted leave to file an amended complaint that added DUAL as a Plaintiff. D.E. 97. Judge Kiel also ordered that Reilly prosecute the claims asserted against DUAL in the Reilly Action by way of a counterclaim (or third-party claim if the Capacity Providers did not file an amended pleading). Id. Finally, the Reilly Action was stayed pending further order of the Court. Id.

The Capacity Providers subsequently filed their Amended Complaint on March 22, 2021, that, among other things, added DUAL as a Plaintiff. D.E. 22. Reilly then filed the instant motion to dismiss the Amended Complaint. D.E. 27.

II. STANDARD OF REVIEW

Reilly asserts that this matter should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(1), for lack of subject-matter jurisdiction, and Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief can be granted.

To decide a Rule 12(b)(1) motion to dismiss, a court must first determine whether the party presents a facial or factual attack against a complaint. A facial attack contests “subject matter jurisdiction without disputing the facts alleged in the complaint, and it requires the court to ‘consider the allegations of the complaint as true.'” Davis v. Wells Fargo, 824 F.3d 333, 346 (3d Cir. 2016) (quoting Petruska v. Gannon Univ., 462 F.3d 294, 302 n.3 (3d Cir. 2006)). A factual attack challenges “the factual allegations underlying the complaint's assertion of jurisdiction, either through the filing of an answer or ‘otherwise presenting competing facts.'” Davis, 824 F.3d at 346 (quoting Constitution Party of Pa. v. Aichele, 757 F.3d 347, 358 (3d Cir. 2014)). Here, in seeking dismissal for lack of subject-matter jurisdiction, the parties rely solely on Plaintiffs' allegations in the Complaint. Accordingly, Defendant presents a facial attack. As a result, like a Rule 12(b)(6) motion to dismiss, “the Court must consider the allegations of the complaint as true.” Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977).

For a complaint to survive dismissal under Rule 12(b)(6), it must contain sufficient factual matter to state a claim that is plausible on its face. Ashcroft v. Iqbal, 556 U.S 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Further, a plaintiff must “allege sufficient facts to raise a reasonable expectation that discovery will uncover proof of her claims.” Connelly v. Lane Const. Corp., 809 F.3d 780, 789 (3d Cir. 2016). In evaluating the sufficiency of a complaint, district courts must separate the factual and legal elements. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-211 (3d Cir. 2009). Restatements of the elements of a...