LM Insurance Corp. v. Kobys

          Jonathan Mark Kuller, Esq. GOLDBERG SEGALLA LLP, Attorney for Plaintiff

          Mark Damian Hoerrner, Esq. BUDD LARNER PC, Attorney for Defendant

          OPINION

          JEROME B. SIMANDLE Chief U.S. District Judge

         I. INTRODUCTION

         Plaintiff LM Insurance Corporation (hereinafter, “Plaintiff” or “LMIC”) initiated this diversity action against Defendant Vitaliy Kobys d/b/a LADA II Express Co. (hereinafter, “Defendant” or “LADA II”) seeking (1) a declaratory judgment that Defendant agreed that Plaintiff's premium calculation would include remuneration Defendant paid to its owner-operators, and (2) the recovery of a retrospective premium adjustment allegedly owed by Defendant. Defendant seeks dismissal of Plaintiff's Complaint pursuant to Fed.R.Civ.P. 12(b)(6), and Plaintiff has filed a cross-motion for partial summary judgment pursuant to Fed.R.Civ.P. 56.

         For the reasons that follow, Defendant's motion to dismiss will be denied, and Plaintiff's cross-motion for partial summary judgment will also be denied.

         II. BACKGROUND

         A. Factual Background^[1]

         On June 20, 2011, Defendant submitted an application to the New Jersey Compensation Rating and Inspection Bureau (“CRIB”) requesting CRIB to designate an insurance company to provide it with workers' compensation insurance in accordance with the New Jersey Workers' Compensation Insurance Plan (“the New Jersey Plan”). (Compl. at ¶ 12; Ex. B to Compl.)^[2]Defendant could not purchase workers' compensation insurance on its own through the voluntary market, so it applied for insurance via the involuntary market through the Plan. In submitting the Plan Application, LADA II agreed with respect to any insurance provided to it by a carrier assigned by CRIB that (1) the provisions of the New Jersey Plan would be applicable, (2) the provisions of the New Jersey Workers Compensation and Employers Liability Manual (“Manual”) would be applicable, ^[3] (3) that it would provide true and correct information, (4) that it would cooperate fully with any assigned carrier, and (5) that it would inform any assigned carrier promptly of any changes in the underwriting information provided. (Id. at ¶ 19.) Defendant also submitted a Truckers Supplemental Application with its main Plan Application, and in response to a question asking to describe its business, Defendant replied, “Trucking company/long haul transportation for hire.” (Id. at ¶¶ 20, 23; Pl.'s SMF at ¶ 12.) Furthermore, when asked if it used any owner-operators, Defendant checked “No.” (Compl. at ¶ 22.)

         Plaintiff alleges that Defendant agreed to the “Hired Vehicle Rule” portion of the Manual when it applied for coverage pursuant to the New Jersey Plan. (Id. at ¶¶ 27, 30.)^[4] As a result, the Hired Vehicle Rule was applicable to insurance applied for and obtained by Defendant through the New Jersey Plan. (Id. at ¶ 28.) According to the records of the Federal Motor Carrier Safety Administration, Defendant has been a U.S. Department of Transportation (“USDOT”) authorized interstate common carrier, USDOT No. 851399, with eight power units and ten drivers. (Id. at ¶ 40.)

         Initially, in 2011, CRIB designated other insurers to provide coverage to Defendant under the Plan. (Pl. SMF ¶ 21.) On April 2, 2014, CRIB directed Plaintiff via a Notice of Re-Designation to provide coverage for Defendant effective June 24, 2014. (Id. at ¶ 34; Ex. F. to Compl.) Defendant had two policies with Plaintiff - WC5-33S-364619-014 (the “014 Policy”), which was effective from June 24, 2014 to June 22, 2015, and WC5-33S-364619-015 (the “015 Policy”), which was effective from June 22, 2015 to June 22, 2016. (Id. at ¶¶ 35-37.) Coverage has been renewed for the period of June 22, 2016 to June 22, 2017. (Pl.'s SMF at ¶ 24.)

         The policies described the process for calculating the workers' compensation insurance premiums due, which involved multiplying a rate by a “premium basis.” (Id. at ¶ 38.) Plaintiff explains that “premium basis” included payroll “and all other remuneration paid or payable during the policy period for the services of . . . [a]ll your officers and employees engaged in work covered by this policy” and [a]ll other persons engaged in work that could make us liable under [the workers' compensation insurance portion] of this policy.” (Id.) The policies further explained that each contract year, Defendant would pay estimated premiums in advance for the policies as the final premium was determined “by using the actual, not the estimated, premium basis and the proper classifications and rates that applied to [Defendant].” (Id.) The policies also stated that “You will let us examine and audit all your records that relate to this policy. These records include ledgers, journals, registers, vouchers, contracts, tax reports, payroll and disbursement records, and programs for storing and retrieving data.” (Id.) Relatedly, each policy contained a New Jersey Workers' Compensation Insurance Plan Eligibility endorsement, which provided that Plaintiff could “audit and examine [Defendant's] records and otherwise fully cooperate with [their] attempts to conduct premium audits or inspect the workplaces.” (Id. at ¶ 39; Exs. B & C to Kobys Cert.)

         On October 2, 2015 and November 24, 2015, Plaintiff conduced an audit of Defendant's 014 Policy, and Plaintiff's audit representative found that Defendant had over $700, 000 of Class 7219 Truckmen exposure, yet maintained no workers' compensation coverage in accordance with the provisions of Title 34 of the New Jersey Statutes. (Compl. at ¶ 42.) Plaintiff calculated the appropriate final premium and tendered a bill to Defendant, but Defendant has “failed and refused” to pay any of the adjusted premium amounts. (Id. at ¶¶ 43-44, 51.)

         B. Procedural History

         Plaintiff filed its Complaint on April 21, 2016. [Docket Item 1.] Count I requests a declaratory judgment that pursuant to the Application, the New Jersey Plan, the Manual, and the two policies between Plaintiff and Defendant, LADA II agreed to the inclusion in premium base of remuneration paid to various trucking concerns, who did not maintain workers' compensation coverage that complied with New Jersey law. (Id. at ¶¶ 45-47.)

         Count II is a breach of contract claim based on Defendant's failure to pay premiums. (Id. at ¶¶ 48-51.) Defendant filed its Motion to Dismiss on July 11, 2016, and attached a forty-four page affidavit of Vitaliy Kobys. [Docket Item 8.]^[5] Then, on August 23, 2016, Plaintiff filed its opposition to Defendant's Motion to Dismiss, while also filing a cross-motion for partial summary judgment on Count II. [Docket Item 15.] Defendant filed opposition to Plaintiff's motion for partial summary judgment on September 13, 2016. [Docket Item 19.] The Court has considered the papers filed by the parties and rules on the written submissions and without oral argument, pursuant to Rule 78, Fed. R. Civ. P.

         III. STANDARD OF REVIEW

         A. Motion to Dismiss Standard

         Pursuant to Rule 8(a)(2), Fed. R. Civ. P., a complaint need only contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Specific facts are not required, and “the statement need only ‘give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citations omitted). While a complaint is not required to contain detailed factual allegations, the plaintiff must provide the “grounds” of his “entitle[ment] to relief”, which requires more than mere labels and conclusions. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         A motion to dismiss under Rule 12(b)(6), Fed. R. Civ. P., may be granted only if, accepting all well-pleaded allegations in the complaint as true and viewing them in the light most favorable to the plaintiff, a court concludes that the plaintiff failed to set forth fair notice of what the claim is and the grounds upon which it rests. Id. A complaint will survive a motion to dismiss if it contains sufficient factual matter to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). Although a court must accept as true all factual allegations in a complaint, that tenet is “inapplicable to legal conclusions, ” and “[a] pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do.” Id. at 678. The Court must construe the complaint in the light most favorable to the plaintiff. In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010) (quoting Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009)).

         In considering a motion to dismiss, the Court only considers “the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents.” Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006). If matters outside of the pleadings are considered, then the motion is treated as a motion for summary judgment. See Fed.R.Civ.P. 12(d).

         C. Summary Judgment Standard

         Summary judgment is appropriate if “there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” Alabama v. North Carolina, 560 U.S. 330, 344 (2010) (citations and internal quotation marks omitted); see also Fed.R.Civ.P. 56(a). In evaluating Defendant's motion for summary judgment, the Court must view the material facts in the light most favorable to the non-moving party, Defendant, and make every reasonable inference in that party's favor. See Scott v. Harris, 550 U.S. 372, 378 (2007); Halsey v. Pfeiffer, 750 F.3d 273, 287 (3d Cir. 2014). An inference based upon “‘speculation or conjecture, '” however, “‘does not create a material factual dispute sufficient to defeat summary judgment.'” Halsey, 750 F.3d at 287 (citations omitted). Rather, the non-moving party must support each essential element with concrete record evidence. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, ” the Court may grant summary judgment. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

         IV. DISCUSSION

         A. Defendant's Motion to Dismiss

         Defendant argues that Plaintiff's Complaint should be dismissed under Rule 12(b)(6) because its policies do not cover most of the truckers that Defendants use, as the company is “really a dispatcher/agent for a group of independent truck drivers.” (Def. Br. at 3.) More specifically, Defendant claims that Plaintiff's 2015 audit was “little more than a pretext” because Defendant received a bill for a premium adjustment of $261, 816 for the 014 policy, which was over 22 times the premium that Defendant initially paid under the policy. (Id. at 12.) Plaintiff replies that Defendant “agreed to precisely the treatment that LMIC employed with regard to the remuneration [Defendant] paid to the alleged owner-operators.” (Opp'n at 2.)

         1. Count I (Declaratory Judgment)

         Plaintiff first seeks relief pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201. The DJA provides that a court “may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a) (emphasis added). “The Supreme Court has long held that this confers discretionary, rather than compulsory, jurisdiction upon federal courts.” Reifer v. Westport Ins. Corp., 751 F.3d 129, 134 (3d Cir. 2014)(quoting Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942)). This is in stark contrast to the general rule that “federal courts have a strict duty to exercise the jurisdiction that is conferred upon them by Congress.” Reifer, 751 F.3d at 134 (quoting Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996)). Nonetheless, although the DJA confers on district courts a “unique and substantial discretion, ” the exercise of that discretion must be “sound and reasoned.” Reifer, 751 F.3d at 139. The DJA is commonly invoked by insurance companies “to seek a declaratory judgment on a purely state law matter” in federal court based on diversity subject matter jurisdiction. Id. at 141. In response to such cases, the Third Circuit has previously observed that “[t]he desire of insurance companies and their insureds to receive declarations in federal court on matters of purely state law has no special call on the federal forum.” State Auto Ins. Cos. v. Summy, 234 F.3d 131, 136 (3d Cir. 2000). Consequently, it became common practice for district courts “to decline to exercise jurisdiction over declaratory judgment actions, involving an insurance company, that are solely brought on diversity, and have no federal question or interest.” Reifer, 751 F.3d at 142. This principle is especially relevant because the interest of a state “in resolving its own law must not be given short shrift simply because one party or, indeed, both parties, perceive some advantage in the federal forum.” Summy, 234 F.3d at 136. Where state law is uncertain or undetermined, the proper relationship between federal and state courts requires district courts to “step back” and be “particularly reluctant” to exercise DJA jurisdiction. Id. at 136. The fact that district courts are limited to predicting-rather than establishing-state law requires “serious consideration” and is “especially important in insurance coverage cases.” Id. at 135.

         In Reifer, however, the Third Circuit cautioned against “declining jurisdiction per se” in such cases, because a “wholesale, ‘revolving door' dismissal of such cases” would evidence neither sound nor reasoned discretion. Id. at 147 (citing Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995) and Bituminous Coal Operators' Assoc., Inc. v. Int'l Union, United Mine Workers of Am., 585 F.2d 586, 596 (3d Cir. 1978)) (additional citations omitted). Instead, the Third Circuit instructed district courts to consider a non-exhaustive list of factors when determining whether to exercise jurisdiction over such declaratory judgment actions, including:

         (1) the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy;

         (2) the convenience of the parties;

         (3) the public interest in settlement of the ...