McElveen v. Cincinnati Ins. Co.

422 F.Supp.3d 1068

Perry Phillip MCELVEEN, as assignee of Johnny Joe Jones, Plaintiff,

v.The CINCINNATI INSURANCE COMPANY, Defendant.

Civil Action No.: 4:19-CV-02265-RBH

United States District Court, D. South Carolina, Florence Division.

Signed October 30, 2019

Robert Fredrick Goings, Jessica Lee Gooding, Goings Law Firm, Columbia, SC, for Plaintiff.

Brandon Gottschall, Mark Steven Barrow, Sweeny Wingate and Barrow PA, Columbia, SC, for Defendant.

ORDER

R. Bryan Harwell, Chief United States District Judge

The matter before this Court is a breach of contract and bad faith action based on an alleged refusal by an insurance company to defend an insured in an underlying lawsuit. In the underlying lawsuit, Plaintiff Perry Phillip McElveen ("McElveen") sued several defendants for injuries he sustained in an automobile collision that occurred on March 16, 2016 that he alleged was caused by Johnny Joe Jones ("Jones"). At the time of the collision, Jones was driving an automobile that had been recently repossessed by American Acceptance Corporation. American Acceptance Corporation ("American Acceptance") sent the automobile to Jones so that he could detail the car prior to its sale at auction. American Acceptance Corporation is the named insured of a policy provided by The Cincinnati Insurance Company, which was in effect at the time of the collision. [ECF No. 1-1, ¶¶ 5-7]. In the underlying lawsuit, Jones never filed an answer or responsive pleading. McElveen obtained a sizeable judgment against Jones after default was entered. Thereafter, on July 17, 2019, Plaintiff Perry Phillip McElveen, as assignee of Johnny Joe Jones, filed a complaint in the State Court of Common Pleas of Horry County, alleging breach of contract and bad faith against Defendant The Cincinnati Insurance Company ("Cincinnati"). [ECF No. 1-1]. He alleges that Cincinnati never tendered a defense on behalf of Johnny Joe Jones in the underlying lawsuit seeking damages for Jones’s negligence. [ECF No. 1-1, ¶¶ 21-24].

On August 12, 2019, Cincinnati removed this case to federal court. [ECF No. 1]. Cincinnati then filed a Motion to Dismiss the Complaint, pursuant to Federal Rules of Civil Procedures 12(b)(1) and 12(b)(6). [ECF No. 4]. Cincinnati argues that the Complaint should be dismissed because the alleged assignor was not a party to the policy of insurance issued by Cincinnati to American Acceptance, and neither Jones nor the automobile are covered under the policy. Therefore, Cincinnati argues that McElveen fails to state a claim for relief in his Complaint. On September 3, 2019, Plaintiff filed a response in opposition to the Motion [ECF No. 8], and Defendant filed its reply on September 9, 2019. [ECF No. 9]. This matter is now before the Court for review.¹

Factual Background

A. Policy of Insurance

Cincinnati issued a policy of business automobile coverage to American Acceptance, Number FIA 141 76 57, with an effective date of November 1, 2014 (the "Policy"). The Policy contains the following provision:

"[w]e will pay all sums an "insured" legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto’."

[ECF #4-2, p. 6].² As alleged in the Complaint, the Policy defines "insured" as follows:

1. Who is an insured

The following are "insureds":

a. You for any covered "auto."

b. Anyone else while using with your permission a covered "auto" you own, hire or borrow except ...

(3) Someone using a covered "auto" while he or she is working in a business of selling, servicing, repairing, parking, or storing "autos" unless that business is yours.

c. Anyone liable for the conduct of an "insured" described above but only to the extent of that liability.

[ECF #4-2, p. 6]. The Policy contains an endorsement titled "Repossessed Auto." The endorsement contemplates coverage for approximately sixty repossessed automobiles, and contains the following:

A. Any "auto" you repossess is a covered "auto" but only while:

1. Being repossessed by you;

2. Held by you at locations listed in the Schedule for sale after repossession; or

3. Pending delivery after sale.

The Repossessed Auto Endorsement also contains the following exclusion: "[t]his insurance does not apply to: [a]ny "auto" while used for other business or personal purposes." Cincinnati argues these provisions preclude McElveen from making a successful claim to recover for his injuries in the underlying lawsuit. McElveen alleges that the 2007 Hyundai Azera ("Hyundai") is a covered auto and Jones is an "insured" under the Policy.

B. Factual Allegations

On October 16, 2017, McElveen sued several defendants, including Johnny Joe Jones and American Acceptance in state court seeking damages for negligence and gross negligence on the part of the defendants related to an automobile collision. He attached the Amended Summons and Complaint filed as Civil Action Number 2017-CP-26-5800 in the Horry County Court of Common Pleas to his Reply to the Motion to Dismiss filed in this Court. [ECF #8-1]. In the negligence action, McElveen alleged he was driving along U.S. Highway 501 in Myrtle Beach when Jones crashed into the vehicle driven by McElveen. McElveen alleged the vehicle was owned by American Acceptance. He further alleged American Acceptance was liable for the actions and omissions of Jones pursuant to the doctrine of respondeat superior and vicarious liability.

On July 17, 2019, McElveen filed a second state court action against Cincinnati, alleging breach of contract and bad faith due to Cincinnati’s failure to tender a defense on behalf of Jones in the negligence lawsuit. [ECF #1-1]. This action was then removed to federal court by Cincinnati based on diversity of citizenship. According to this Complaint, at the time of the collision, Jones was driving a 2007 Hyundai Azera that had been recently repossessed and owned by American Acceptance. [ECF No. 1-1, ¶ 7]. McElveen alleges that after the Hyundai was repossessed, American Acceptance was holding it at its Myrtle Beach location for sale. [ECF No. 1-1, ¶ 8]. American Acceptance provided the vehicle to Jones so that Jones, who worked at a detail shop known as "Dynamite Detailing" could wash and detail the Hyundai in preparation for its sale at auction. [ECF No. 1-1, ¶¶ 8-9]. McElveen alleges that it was customary practice for American Acceptance to have Jones or his father clean and detail cars that had been repossessed. [ECF No. 1-1, ¶ 9]. McElveen further alleges that Jones was a permissive user of the Hyundai. McElveen alleges that Jones drove the Hyundai around the block where it was parked in order to detail the car. [ECF No. 1-1, ¶ 10]. In the process of crossing an intersection close to Dynamite Detailing, Jones and McElveen were involved in the collision. [ECF No. 1-1, ¶ 10]. McElveen alleges that after the collision, American Acceptance made an insurance claim with Cincinnati. [ECF No. 1-1, ¶ 14]. Specifically, McElveen alleges that American Acceptance emailed Cincinnati, explaining that the vehicle was sent to Dynamite Dealing to be cleaned by Jones when the collision occurred. [ECF No. 1-1, ¶ 16]. McElveen further alleges that he made a pre-suit demand on Cincinnati, indicating that Jones was an "insured" and explaining that Jones was a "permissive driver" of a vehicle owned by American Acceptance. [ECF No. 1-1, ¶ 18]. McElveen alleges that Cincinnati knew Jones was a party to the underlying negligence claim and was alleged to be driving the Hyundai. [ECF No. 1-1, ¶ 25]. McElveen alleges that Cincinnati never represented to him that Jones was not considered to be an insured or that it was contemplating a reservation of rights regarding coverage. [ECF No. 1-1, ¶ 20]. McElveen further alleges that while he forwarded a copy of the lawsuit to Cincinnati’s claim representative, Cincinnati never filed an answer or responsive pleading on behalf of Jones, though it did file a responsive pleading on behalf of American Acceptance. [ECF No. 1-1, ¶¶ 21-23]. Eventually, Jones went into default, and McElveen was awarded damages in his favor and against Jones. [ECF No. 1-1, ¶¶ 29-35]. According to McElveen’s Complaint, the Order included language finding Jones to be a "permissive user" of the vehicle. [ECF No. 1-1, ¶ 36].

The lynchpin of McElveen’s Complaint is that Jones is covered under the Policy issued by Cincinnati to American Acceptance as a "permissive user" and that Cincinnati failed to tender a defense on Jones’s behalf. Cincinnati files its Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6), alleging that McElveen cannot state a claim for relief under the Policy based on the provisions found within the Policy.

Discussion

A. Standards of Review

Defendant files its motion pursuant to Rule 12(b)(1) and Rule 12(b)(6) of the Federal Rules of Civil Procedure. Under Rule 12(b)(1), which governs motions to dismiss based on the lack of subject matter jurisdiction, the plaintiff carries the burden to prove the court has jurisdiction to adjudicate the claims presented. Richmond, Fredericksburg & Potomac R. Co. v. U.S. , 945 F.2d 765, 768 (4th Cir. 1991). In making the determination whether jurisdiction exists, the district court regards the pleadings' allegations as evidence on the issue, and may also consider evidence outside the pleadings without converting the proceeding to a motion for summary judgment. Id. A motion to dismiss for lack of subject matter jurisdiction can arise in two ways: (1) when the moving party maintains that the complaint "fails to allege facts upon which subject matter jurisdiction can be based" or (2) when the moving party maintains that the jurisdictional allegations within the complaint are not true. Adams v. Bain , 697 F.2d 1213, 1219 (4th Cir. 1982).

12(b)(6) governs motions to dismiss for "failure to state a claim upon which relief can be granted." The purpose of such a motion is to test the sufficiency of...