United States District Court,

W.D. Missouri,

Central Division.

SENTRY SELECT INSURANCE COMPANY, Plaintiff,

v.

James “Stan” HOSMER, James Duckworth, and Nancy Duckworth, Defendants.

July 17, 2009.

ORDER

NANETTE K. LAUGHREY, District Judge.

Plaintiff Sentry Select Insurance Company (“Sentry”) brought this declaratory judgment action against Defendants James “Stan” Homser (“Hosmer”) and James and Nancy Duckworth (“Duckworths”) seeking a declaration that it had no duty to either defend Hosmer nor indemnify him as a result of a collision between James Duckworth and Mark A. Burleson. Defendant Hosmer filed a five count counterclaim against Sentry asserting claims for bad faith, negligent claims handling, breach of fiduciary duty, breach of contract, and “bad faith-punitive damages.” [Doc. # 50]. Pending before the Court is Sentry’s Motion to Dismiss Hosmer’s Counterclaim [Doc. # 42].

At oral argument the parties stated they had no objection to the Court treating Sentry’s motion as a motion to dismiss Hosmer’s Counterclaim in his Second Amended Answer.

I. Background

The Court treats the allegations in Hosmer’s Counterclaim as true for purposes of the Sentry’s motion to dismiss under Fed.R.Civ.P. 12(b)(6).

Plaintiff Sentry issued an insurance policy (policy number CT750612-3603-041, hereinafter “the Policy”) to CANDS, Inc. (“CANDS”), a trucking company. CANDS was the named insured under the Policy. Defendant Hosmer and Mark Burleson (“Burleson”) were also insureds. The Policy was in effect from May 19, 2004 to May 19, 2005. Sentry was the claims administrators for any claims against the Policy. The Policy provided, in relevant part:

SECTION II-LIABILITY COVERAGE

A. Coverage

We 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.”

….

We have the right and duty to defend any “insured” against a “suit” asking for such damages…. We may investigate and settle any claim or “suit” as we consider appropriate. Our duty to defend or settle ends when the Liability Coverage Limit of Insurance has been exhausted by payment of judgments or settlements.

….

C. Limit Of Insurance

Regardless of the number of covered “autos”, “insureds”, premiums paid, claims made or vehicles involved in the “accident”, the most we will pay for the total of all damages … combined, resulting from any one “accident” is the Limit of Insurance for Liability Coverage shown in the Declarations.

Exhibit A to Sentry’s Complaint. The Policy’s Declarations state that the most that Sentry will pay for any one accident or loss is $1,000,000. Id.

On November 26, 2004, Mark Burleson, while driving a tractor trailer owned by Hosmer and leased to CANDS, collided with a road grader driven by James Duckworth. James Duckworth sustained serious personal injuries. The Policy provided coverage to Hosmer for damages arising from the collision. It also provided coverage to Burleson and CANDS.

The first lawsuit involving the accident was Duck worth v. Burleson, a state case filed in St. Louis. On or about April 26, 2007, the Duckworths entered into a settlement agreement with Burleson pursuant to Section 537.065 of the Revised Statutes of Missouri. The same day, a state court judgment was entered against Burleson, finding that his negligence caused the Duckworths’ injuries. The state court assessed damages against Burleson in the amounts of $8,000,000.00 for damages to James Duckworth and $2,500,000.00 for damages to Nancy Duckworth. Pursuant to that settlement Sentry paid out the one million dollar limit of its policy that insured Burleson, CANDS and Hosmer.

On or about November 30, 2007, the Duckworths filed an action in the United States District Court for the Western District of Missouri, Case Number 07-4247-CV-NKL. In that case, the Duckworths alleged that Hosmer had entered into an indemnity contract to indemnify and hold harmless Burleson for damages caused by Burleson’s negligent acts as an employee of CANDS. The Duckworths made demand upon Hosmer to pay for the damages assessed against Burleson in Duckworth v. Burleson.Sentry was notified of the action but concluded that the Policy did not provide coverage because the limit of the policy had been paid to settle Duckworth v. Burleson.Sentry sent a letter to that effect to Hosmer dated August 15, 2008. The letter further provided, in relevant part:

Sentry hereby agrees to provide a defense to you in the [federal court action] subject to a full and complete reservation of Sentry’s rights, including the right to dispute coverage.

….

At this time, Sentry also intends to seek a judicial determination of Sentry’s coverage obligations with respect to this matter. If it is determined the Policy does not provide coverage for the [federal court action], Sentry reserves the right to withdraw the defense. Further, Sentry reserves the right to seek reimbursement of any defense costs incurred in defending any claim that a court ultimately determines is not covered.

On March 16, 2009, judgment in Duckworth v. Hosmer was entered in federal court finding Hosmer liable to James and Nancy Duckworth on the indemnity agreement in the amount of $8,407,804.00 for James Duckworth and $2,608,946.00 for Nancy Duckworth, as well as costs and interest pursuant to 28 U.S.C. § 1961. Hosmer alleges this “judgment was a direct and foreseeable result of Sentry’s failure to defend, indemnify and protect its insured” by refusing to settle for the full policy limits when the insurance company originally could have and therefore “Sentry is obligated to pay the full verdict” rendered against Hosmer.

Hosmer’s Counterclaim contains five counts. In Count I, Hosmer alleges Sentry acted in bad faith by: (1) failing to settle the Duckworths’ claims; (2) placing its own interest ahead of its insured in violation of its fiduciary obligations; (3) improperly settling, negotiating, or otherwise handling claims involving multiple insureds to Hosmer’s detriment; (4) failing to defend the claim brought against Hosmer; (5) refusing to properly investigate facts regarding Hosmer’s potential financial exposure for the Duckworths’ injuries and Hosmer’s coverage for the accident; (6) taking actions not in Hosmer’s best interest; (7) failing to recognize and meet fiduciary duties to Hosmer; (8) refusing coverage for Hosmer’s claim without cause and in violation of the Policy; (9) failing to notify Hosmer of the settlement offer in the state court action so Hosmer could take action to protect his financial interests; (10) agreeing to settlements or other agreements to protect Sentry’s financial interests or other insureds’ interests without protecting Hosmer’s interest; (11) failing to hire independent and separate counsel for Hosmer; and (12) exposing Hosmer to excess liability in order to avoid an excess judgment against Burleson.

In Count II, Hosmer alleges Sentry was negligent in that it: (1) failed to take action in Hosmer’s best interest; (2) took action contrary to Hosmer’s interest; (3) failed to meet the Duckworths’ reasonable demands; (4) failed to properly investigate claims against Hosmer to determine his liability and financial exposure, as well as coverage; (5) failed to cooperate with the Duckworths to seek a resolution of the claim that would protect Hosmer; (6) failed to pay the full judgment against Hosmer; and (7) failed to notify Hosmer of the settlement offer in the state court action so that he could take action to protect his own financial interest.

In Count III, Hosmer alleges Sentry breached its fiduciary duties to him by: (1) failing to take action in his best interest; (2) taking action contrary to his interest; (3) failing to properly investigate the Duckworths’ claim against him to determine his liability; (4) failing to meet the Duckworths’ reasonable demands; (5) failing to settle the Duckworths’ claims for the policy limits when given the opportunity to do so; (6) attempting to settle claims against its insureds for sums less than the reasonable value of the claim; (7) failing to cooperate with the Duckworths to seek a resolution of the claim that would protect Hosmer; (8) failing to pay the full judgment entered against Hosmer; (9) refusing to defend and protect Hosmer and his interest; and (10) failing to notify Hosmer of the settlement offer in the state court action so that he could take action to protect his financial interest.

In Count IV of his Counterclaim, Hosmer alleges Sentry breached its insurance contract with him by: (1) failing to defend and protect him; and (2) failing to investigate, negotiate and settle the claims when given the opportunity to do so.

II. Discussion

In reviewing Sentry’s Rule 12(b)(6) motion to dismiss, the Court must view the allegations in the light most favorable to Hosmer. See Kottschade v. City of Rochester, 319 F.3d 1038, 1040 (8th Cir.2003). In 2007 the Supreme Court issued a new standard for evaluating motions to dismiss under Federal Rule 12(b)(6) but cautioned that it had not created a heightened pleading standard. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 562-63, 569 n. 14 (2007) (finding that the well-known “no set of facts” standard set forth in Conley v. Gibson, 355 U.S. 41 (1957), had “earned its retirement”). Under Twombly, for complaints to be viable they must contain enough facts to “nudge [them] across the line from conceivable to plausible.” 550 U.S. at 570. The Supreme Court recently clarified the Twombly standard, stating that “threadbare allegations” and “the-defendant-unlawfully-harmed-me accusation[s]” are insufficient to survive a motion to dismiss and that district courts should rely on their own “judicial experience and common sense” in making the “context-specific” determination of whether factual allegations make a right to relief plausible. See Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-50 (2009). Without such factual allegations, “it is hard to see how a claimant could satisfy the requirement of providing not only ‘fair notice’ of the nature of the claim, but also ‘grounds’ on which the claim rests.”Twombly at 554 n. 3. That said, the factual allegations of a complaint are still presumed to be true and are construed in the light most favorable to the plaintiff, “even if it strikes a savvy judge that actual proof of those facts is improbable and that recovery is very remote or unlikely.”Id. at 556 (quotation omitted).But see Iqbal, 129 S.Ct. at 1949 (clarifying that the presumption of truth and favorable construction applied to factual allegations does not apply to legal allegations).

A. Governing Law

As an initial matter, in their briefing the parties disagree as to whether Missouri or Kentucky law applied to Hosmer’s claims. In a diversity action, the Court must apply the choice of law principles of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Missouri uses the “most significant relationship” approach of the Second Restatement. See Viacom, Inc. v. Transit Cas. Co., 138 S.W.3d 723, 725 (Mo. banc 2004). When determining choice of law issues in tort actions, Missouri courts consider the factors set out in Section 145 of the Second Restatement. Goede v. Aerojet Gen. Corp., 143 S.W.3d 14, 24 (Mo.Ct.App.2004) (citing Kennedy v. Dixon, 439 S.W.2d 173, 184) (Mo. banc 1969)). Under Section 145, the Court considers: “(a) the place where the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered.” Id. at 26.With respect to the first of these factors, Hosmer’s injuries all relate to litigation in state and federal courts located in Missouri; thus, any injury Hosmer suffered was suffered in Missouri. Second, for the same reason, the conduct causing the injuries occurred in Missouri. As for the third factor, Plaintiff Sentry is a company incorporated under the laws of Wisconsin with its principal place of business in Wisconsin, and authorized to issue insurance policies in Kentucky. Defendant Hosmer is a citizen of the State of Alabama. Finally, with respect to the fourth factor, Sentry issued its Policy to CANDS in Kentucky. Hosmer leased the truck driven by Burleson to CANDS which was engaged in the business of interstate trucking in multiple states. Based on these factors, the Court concludes that Missouri has the most significant and relevant contacts to Hosmer’s tort claims, which relate to Sentry’s actions or inactions with respect to litigation in Missouri. The only factor weighing in favor of Kentucky is the place where the insurance policy was issued. Given that it was issued to an interstate trucking company, the parties to that contract would be on notice that coverage disputes could arise outside the state of Kentucky. Therefore, the Court places less weight on this factor.

At oral argument on the motion to dismiss, the parties agreed that the Court would apply Missouri law to the breach of contract claim. The Court will apply Missouri law to all claims in ruling on Sentry’s motion to dismiss.

B. Count I-Hosmer’s Bad Faith Claims

As to Count I, Sentry argues that Hosmer has failed to state a bad faith claim against Sentry for its conduct in either the Duckworth v. Burleson state case or the Duckworth v. Hosmer federal case.

1. Bad Faith Failure to Defend

An insurer has a contractual duty to defend its insureds in good faith. Under Missouri law, an insurer’s “duty to defend arises whenever there is a potential or possible liability to pay based on the facts at the outset of the case [.]” McCormack Baron Mgmt. Servs. Inc. v. American Guar. & Liab. Ins. Co., 989 S.W.2d 168, 170 (Mo. banc 1999) (quoting Butters v. City of Independence, 513 S.W.2d 418, 424 (Mo. banc 1974)). An insurer’s duty to defend its insured “arises when the insured is first sued[.]” Esicorp, Inc. v. Liberty Mut. Ins. Co., 193 F.3d 966, 969 (8th Cir.1999) (interpreting Missouri law).

Citing Esicorp, Sentry argues that it had no duty to defend Hosmer before he was sued, and that Hosmer was not a party to the Duckworth v. Burleson action; therefore, it owed him no duty of good faith in that action. Hosmer argues that Count I states a claim under Missouri law because an insurer has a duty to defend its insured, so long as facts either known to an insurer or which are reasonably discoverable by the insurer show that there is potential or possible coverage under the policy. Def.’s Sugg. in Opp. at 16 (citing Truck Ins. Exchange v. Prairie Framing, LLC, 162 S.W.3d 64, 83 (Mo.Ct.App.2005). However, even in the Truck Insurance Exchange case, the insured was a named defendant in the underlying action. Id. at 69.Thus, that case stands not for the proposition that an insurer has a duty to defend an insured that has not yet been sued, but that in determining whether an insurer has a duty to defend an insured that has been sued, facts known to or reasonably discoverable by the insurer should be considered along with the allegations in the pleadings. Because Hosmer was not sued in the Duckworth v. Burleson action, Sentry cannot have breached a duty to defend him in that case. Hosmer’s claim in Count I based upon Sentry’s failure to defend him in the Duckworth v. Burleson action must be dismissed.

Sentry argues that Hosmer cannot recover for any conduct related to the Duckworth v. Hosmer case because the policy limits had already been paid before that suit was filed. At oral argument, Hosmer acknowledged that the Policy’s limits of $1 million were exhausted when Sentry paid out $997,839.80 in settlement of the Duckworth v. Burleson action on behalf of insureds other than Hosmer. Sentry argues that, pursuant to the Policy’s terms, it had no duty to defend Hosmer in Duckworth v. Hosmer once the Policy limits were exhausted in a reasonable settlement of the earlier case.

In Millers Mutual Insurance Association v. Shell Oil Company, the Missouri Court of Appeals recognized that an insurer’s settlement on behalf of one insured which exhausts policy limits may operate to extinguish the insurer’s duty to defend other insureds. 959 S.W.2d 864, 870 (1997). In Millers Mutual, the plaintiff sued two of Millers Mutual’s insureds. Id. at 865-866.The plaintiff then offered to settle only with respect to one of the insureds, rejecting Millers Mutual’s offer to settle on behalf of both insureds. Id. at 866.Millers Mutual settled with respect to one insured for the policy limits, and then filed for a declaratory judgment that its duty to defend the non-settling insured had ceased with its payment of the policy limits in settlement of claims against the settling insured. Id. The Missouri Court of Appeals stated that:

Millers … should not be obligated to defend an additional insured after paying its limits in a reasonable settlement…. A settlement offer given to only one insured that would exhaust coverage under the liability limit of the policy creates a dilemma for the insurer. An insurer should not be precluded from accepting a reasonable settlement offer for fewer than all insureds. By accepting the offer the insurer would avoid being subjected to liability exceeding the policy limits due to its rejection of a reasonable offer…. Further, any settlement would benefit all insureds by decreasing the total amount of liability in the underlying suit.

Id. at 870.In Millers Mutual, the non-settling insured had agreed that the settlement reached by the insurer was reasonable under the circumstances. Id. at 866.The Millers Mutual court held that “an insurer relying on unambiguous policy language may terminate its duty to defend an additional insured when the policy limits are exhausted in a good faith settlement on behalf of the named insured.”Id. at 872.If Sentry’s settlement of the claims against Burleson in Duckworth v. Burleson was a reasonable, good faith settlement, then the exhaustion of the policy limits in settlement of that case terminated its duty to defend or indemnify Hosmer under the policy. However, the “reasonableness” and “good faith” of the settlement in the earlier case is a fact-intensive issue not appropriate for resolution on a motion to dismiss. Sentry’s motion must be denied with respect to Hosmer’s claim for Sentry’s failure to defend him in the Duckworth v. Hosmer case.

2. Bad Faith Failure to Settle

Missouri law recognizes a tort claim for bad faith failure to settle. See Freeman v. Leader Nat’l Ins. Co., 58 S.W.3d 590, 598 (Mo.Ct.App.2001); Zumwalt v. Utilities Ins. Co., 228 S.W.2d 750 (Mo. banc 1950). At oral argument, the parties disagreed as to whether this tort arises out of an insurer’s duty to defend or its duty to indemnify, but regardless of its source, Missouri cases have established the requirements for this tort.

Missouri courts have held that “[a]n insurer under a liability policy has a fiduciary duty to its insured to evaluate and negotiate third-party claims in good faith.” Shobe v. Kelly, 279 S.W.3d 203, 209 (Mo.Ct.App.2009) (citing Duncan v. Andrew County Mut. Ins. Co., 665 S.W.2d 13, 18 (Mo.Ct.App.1983)).“Where [an insurer] wrongfully breaches this duty and refuses to settle within policy limits, the insurer may be held liable [under the tort of bad faith failure to settle] for resulting losses to the insured.”Id. A claim for bad faith failure to settle under Missouri law requires four elements: (1) the insurer “has assumed control over negotiation, settlement, and legal proceedings against the insured; (2) the insured has demanded that the insurer settle the claim brought against the insured; (3) the insurer refuse[d] to settle the claim within the liability limits of the policy; and (4) in so refusing, the insurer act[ed] in bad faith.” Freeman, 58 S.W.3d at 598. Where an insurer has refused to provide a defense to its insured, the first two elements above are not required, as the courts refuse to “reward [an insurer’s] refusal to provide a defense by insulating it from a [bad faith failure to settle] claim.” Shobe, 279 S.W.3d at 210.

With respect to the Duckworth v. Burleson action, Hosmer has pointed to no “legal proceedings” brought against him, since he was not a defendant in that case, and has not alleged that he demanded that Sentry settle a claim against him with respect to that lawsuit. As Hosmer points out, there is a Missouri case which appears to recognize a cause of action for bad faith failure to settle even where the insured has not been sued, where an offer to settle claims against that insured is made prior to the initiation of legal proceedings, implying that legal proceedings against an insured is not a necessary element of the tort. See Ganaway v. Shelter, 795 S.W.2d 554, 557-561 (Mo.Ct.App.1990) (bad faith failure to settle claim premised upon insurer’s failure to settle prior to initiation of litigation against insured). However, even though the insured had not yet been sued in Ganaway, there had clearly been a claim against the insured and an offer to settle that claim. Id. Hosmer’s counterclaim states, in relevant part:

74. On or about November 26, 2004 there was a vehicle collision involving a road grader driven by James Duckworth and a tractor being driven by Mark Burleson.

….

78. Sentry and/or its claim handlers and agents were notified of the incident, and were aware that claims were being made against its insureds arising out of the above referenced collision.

79. Sentry’s insureds under the policy included CANDS, Inc., Mark Burleson and James “Stan” Hosmer.

80. Sentry was notified of an offer to settle claims as a result of injuries to the Duckworths’ within the policy limits of coverage.

81. Following receipt of a demand to settle within the policy limits, Sentry refused to offer the policy limits for the protection of its insureds.

The counterclaim allegations do not state which insureds Sentry was notified of claims against, or which insureds were the subject of the offer to settle claims referenced in paragraph 80. However, at oral argument Hosmer’s attorney indicated that there were two settlement offers made to Sentry in the course of the Duckworth v. Burleson action, both of which involved claims against CANDS, Inc., and Burleson, but not Hosmer.It appears there were no “legal proceedings” against Hosmer, no demand by Hosmer that Sentry settle any claim against him, and no offer of settlement with respect to a claim against Hosmer that would have been the subject of a refusal to settle in bad faith by Sentry. Thus, with respect to the Duckworth v. Burleson action, Hosmer’s counterclaim fails to state a claim for bad faith failure to settle.

See Transcript of July 1, 2009 Oral Argument at 17-18 [Doc. # 62]. Hosmer’s attorney stated: “[t]his insurer was given an opportunity … to settle all of the claims within the policy limits, and I understand there’s some dispute about that, but I think the evidence will be that any extinguishment of the claim against Cands and Burleson extinguish the claims against Hosmer. Then they were given a second opportunity during the course of the litigation to extinguish all of these claims, and, again, did not take that[.]” Thus, the settlement offers were offers to settle claims against CANDS, Inc., and Burleson, but not Hosmer.

With respect to Hosmer’s claim that Sentry acted in bad faith in failing to settle claims against him in the Duckworth v. Hosmer action, Sentry again argues that Hosmer cannot recover for Sentry’s failure to settle on his behalf in Duckworth v. Hosmer because it had already paid the Policy limits of $1 million, extinguishing any duty to Hosmer, before that case was filed. As noted above, Sentry paid the Policy limits in the course of settling the earlier Duckworth v. Burleson action. Sentry argues that, pursuant to the Policy’s terms, it had no duty to settle claims against Hosmer in the Duckworth v. Hosmer case once the Policy limits were exhausted in a good faith reasonable settlement of the claims against its other insureds in Duckworth v. Burleson, citing Millers Mutual.As explained above, the “reasonableness” and “good faith” of the settlement in the earlier case is a fact-intensive issue not appropriate for resolution on a motion to dismiss.

C. Count II-Hosmer’s Negligent Claims Handling Claim

In Count II, Hosmer alleges that Sentry owed him a duty “[p]ursuant to the contract of insurance”. Counterclaim at ¶ 101. Hosmer further alleges that, in various respects, “Sentry acting through its agents and employees [was] negligent in fulfilling [its] duties of defense, claims handling, and settlement owed to Hosmer[.]”Id. at ¶ 103.Sentry argues that Count II of Hosmer’s Counterclaim must be dismissed because Missouri courts do not recognize a cause of action based upon negligent claims handling.

In Richey v. Philipp, the plaintiff-brother of the insured-sued defendants, the insurer and its agent, for injuries he sustained allegedly as a result of the defendants’ fraudulent misrepresentation, negligent misrepresentation, breach of fiduciary duty, and negligence. 259 S.W.3d 1, 5-6 (Mo.Ct.App.2008). The insurer’s agent had told the insured that her homeowner’s insurance would not cover the removal of a tree limb from her roof. Id. at 6. The insured told her brother, the plaintiff, that her policy did not cover limb removal, and the plaintiff offered to help the insured with the limb removal. Id. In the process of removing the limb from the insured’s roof, the limb knocked the plaintiff off of the roof, resulting in serious injuries to the plaintiff. Id. Defendants in Richey argued that “no tort remedy exists in Missouri for breach of an insurance contract and that the only remedy for wrongful denial of insurance coverage is a contract action.”Id. at 7. The Missouri Court of Appeals noted that, in Overcast v. Billings Mutual Insurance Company, the Missouri Supreme Court had held that “a tort claim may be brought against [an] insurer based on a bad faith refusal to settle a claim brought by a third party and when a claim is not based on the insurer’s refusal to pay but is ‘based on conduct quite distinct from conduct that merely constituted a breach of contract.’ “ Id. (quoting Overcast v. Billings Mut. Ins. Co., 11 S.W.3d 62, 68 (Mo. banc 2000)) (emphasis added). The Court in Overcast had allowed a defamation claim against an insurer because it found that “the insured’s tort claim for defamation was not dependent on the elements of the contract claim and that the denial of coverage was not part of the insured’s defamation claim.” Id. (citing Overcast, 11 S.W.3d at 68 n. 6). The Court of Appeals in Richey distinguished Overcast and other cases on the basis that the plaintiff in Richey was not an insured, but rather a third party who was a stranger to the insurance contract. Id. The Court held that Richey could not “be limited in his remedies by a contract to which he was not a party for … injuries he may have suffered as a result of action by an insurance company or an insurance agent.” Id. Therefore, the Court of Appeals rejected the defendants’ argument that Richey, a non-insured, was limited to contractual causes of action. Id. at 7-8.

Thus, Missouri courts allow for tort claims by an insured against an insurer where: (1) the claim is for bad faith refusal to settle a claim brought by a third party; or (2) the claim is based on conduct distinct from conduct constituting a breach of the insurance contract. Id. at 7 (citing Overcast, 11 S.W.3d at 68).

In this case, Hosmer’s negligent claims handling cause of action is based entirely on Sentry’s breach of the Policy. Counterclaim at ¶ 102. Hosmer’s claim relates to Sentry’s refusal to defend him and to settle claims against him pursuant to the Policy. Missouri courts would not recognize this negligence claim which is not a bad faith claim and which is not distinct from conduct which would constitute a breach of the Policy. Count II of Hosmer’s Counterclaim must be dismissed.

D. Count III-Breach of Fiduciary Duty Claim

Missouri courts have recognized insureds’ claims for breaches of fiduciary duty against their insurers. See Dairy Farmers of America, Inc. v. Travelers Ins. Co., 292 F.3d 567, 572 (8th Cir.2002). Under Missouri law, a claim for breach of fiduciary duty requires “four elements: (1) the existence of a fiduciary relationship between the parties, (2) a breach of that fiduciary duty, (3) causation, and (4) harm. Id. (citing Koger v. Hartford Life Ins. Co., 28 S.W.3d 405, 411 (Mo.Ct.App.2000)). Since the Missouri Court of Appeals’ decision in Craig v. Iowa Kemper Mutual Insurance Company, 565 S.W.2d 716 (Mo.Ct.App.1978), Missouri courts have “consistently recognized [that] ‘[a]n insurer’s right to control settlement and litigation under a liability insurance policy creates a fiduciary relationship between insurer and insured[ ]’ “ that can support a claim for breach of fiduciary duty. Id. at 573 (quoting Freeman v. Leader Nat’l Ins. Co., 58 S.W.3d 590, 598 (Mo.Ct.App.2001) (internal citations omitted)). Hosmer’s Counterclaim alleges that pursuant to the Policy’s terms, Sentry had the right to control settlement of claims against Hosmer and that a fiduciary relationship existed between Sentry and himself. Hosmer’s Counterclaim further alleges that Sentry breached its fiduciary duty to him and that he was harmed as a result of that breach. Sentry argues that Count III should be dismissed because Missouri law does not “recognize [a] cause[ ] of action based on ‘negligent’ claims handling.” Count III is not a claim for negligence, but rather a claim for breach of fiduciary duty. Sentry has failed to demonstrate that Hosmer’s Counterclaim fails to state a claim for breach of fiduciary duty; Sentry’s motion must be denied as to Count III.

E. Count IV-Hosmer’s Breach of Contract Claim

Sentry argues that Hosmer’ breach of contract claim fails as a matter of law because the full Policy limits were exhausted by the settlement in Duckworth v. Burleson.As discussed above with respect to Sentry’s motion to dismiss Hosmer’s claims in Count I related to the Duckworth v. Hosmer case, issues of the “reasonableness” and “good faith” of Sentry’s settlement with CANDS, Inc., and Burleson in the Duckworth v. Burleson action are inappropriate for resolution on a motion to dismiss. Sentry’s motion must be denied with respect to Count IV.

F. Count V-Punitive Damages

Because Sentry does not discuss Hosmer’s Count V for “Bad Faith-Punitive Damages” in its motion, the Court will not dismiss Count V.

III. Conclusion

Accordingly, it is hereby

ORDERED that Sentry’s Motion to Dismiss Hosmer’s Counterclaim [Doc. # 42] is GRANTED as to Count II and Hosmer’s claims in Count I related to Sentry’s failure to defend Hosmer in Duckworth v. Burleson.It is DENIED in all other respects.

United States District Court,

S.D. New York.

RIMAC INTERNACIONAL CIA DE SEGUROS Y REASEGUROS, S.A., Plaintiff,

v.

EXEL GLOBAL LOGISTICS, INC., Cielos Del Peru S.A., Galaxy Aviation Cargo Inc., Checkmate Priority Express, Inc., and Continental Freightways, Inc., d/b/a Fineline Trucking, Defendants.

No. 08 Civ. 3915.

June 29, 2009.

Purrington & McConnell, by: John H. McConnell, Esq., New York, NY, for Plaintiff.

Duane Morris, LLP, by: James W. Carbin, Esq., Newark, NJ, Duane Morris, LLP, by: Alissa M. Christie, Esq., Boston, MA, for Defendant Exel Global Logistics, Inc.

Kaplan, Von Ohlen & Massamillo, LLC, by: Nicholas E. Pan telopoulos, Esq., New York, NY, for Defendants Cielos Del Peru S.A., Galaxy Aviation Cargo Inc., and Checkmate Priority Express, Inc.

Schindel, Farman, Lipsius, Gardner & Rabinovich, LLP, by: Glenn R. Kramer, Esq., Jean M. Gardner, Esq., New York, NY, for Defendant Continental Freightways, Inc.

OPINION

SWEET, District Judge.

The defendant, Exel Global Logistics, Inc. (“Exel”) has moved pursuant to Rule 12(b)(6), Fed.R.Civ.P., to dismiss the complaint of plaintiff, Rimac Internacional Cia De Seguros Y Reaseguros, S.A. a/s/p Telefonica Moviles, S.A. (“Telefonica”), against Exel based upon the arbitration clause in the service contract entered into between Exel Global Logistics Sucursal Del Peru S.A. (“Exel Peru”) and Telefonica, dated January 1, 2004, and renewed on January 16, 2006 (the “Contract”). In the alternative, Exel seeks an order staying this action.

Defendant Continental Freightways, Inc. s/h/a Continental Freightways, Inc. d/b/a Fineline Trucking (“Continental”) has also moved to dismiss, or, in the alternative, to transfer this action on the grounds of forum non conveniens and 28 U.S.C. § 1404(a).

Upon the facts and conclusions set forth below, the motion of Exel is granted, and this action is stayed. The motion of Continental is denied with leave to renew in the event that the arbitration or settlement does not resolve the claims of the parties.

I. BACKGROUND

On April 25, 2008, Telefonica filed its complaint (the “Complaint”) against Exel, Cielos del Peru, S.A. (“Cielos”), Galaxy Aviation Cargo, Inc. (“Galaxy”), Checkmate Priority Express, Inc. (“Checkmate”), and Continental. The Complaint seeks damages in the amount of $804,153.34 for the subrogated loss of approximately 15,000 Nokia cell phones which were hijacked in Fort Pierce, Florida, on or about April 28, 2006.

At the time of the loss, the cell phones were being shipped by land from Irving, Texas, to Miami, Florida, for further transport by air to Lima, Peru. Continental, a Florida corporation with its principal place of business in Florida, worked with Checkmate to facilitate the transport of the cargo. Continental does not maintain an office or telephone listing in New York and has no personnel, agents, bank accounts, or real or personal property in New York.

The freightliner tractor was eventually recovered in Hialeah, Florida, and the utility trailer recovered in Miami, Florida.

The Complaint alleges that “[a]t the time of this loss, plaintiff’s subrogor Telefonica had a contract with defendant Exel’s Peruvian counterpart, Exel Global Logistics Sucursal del Peru S.A. (hereinafter “Exel Peru”), for the integrated transportation and customs clearance and delivery of all of its’ [sic] international cargo.”Declaration of James W. Carbin, Esq. (“Carbin Decl.”), Exh. A; Complaint ¶ 13.

The Contract between Telefonica and Exel Peru, referenced in Telefonica’s Complaint, contains an “Arbitration Clause.” The clause provides:

Any dispute arising from the interpretation or execution hereof shall be solved directly by the parties for which they agree to make their best efforts to solve their controversies based on their bona fide principles, pursuant to the intention stated in this agreement. If despite this fact there should be any controversy, it shall be submitted to the unappealable award of an arbitration court composed of three members, two arbitrators shall be appointed by the parties and these two arbitrators shall appoint an umpire who shall chair the court. If no agreement is reached regarding the appointment of the umpire or if any party shall [not] appoint its own arbitrator within 10 working days after this request, the corresponding appointment shall be made upon request of the parties by the National and International Arbitration and Conciliation Center of the Lima Chamber of Commerce. The proceeding shall take place in Lima subject to the Arbitration Regulations of the National and International Arbitration and Conciliation Center of the Lima Chamber of Commerce, which shall not exceed 60 days from the arbitration court settlement, being the arbitrators able to extend this term for any justified reason. This arbitration proceeding shall take place according to law.

Id., Exh. B. Clause 13.

Telefonica has also filed a complaint in Peru against DHL Global Forwarding Peru S.A. (“DHL”), Exel’s successor company and assignee to the Contract, for the same 15,000 Nokia cell phones loss, claiming the same entitlement to damages in the amount of $804,153.34. The assignment to DHL occurred on or about April 1, 2006, when Exel Peru transferred all of its rights and obligations by contractual assignment to DHL. The Peruvian Court has ordered that claim to arbitration.

The instant motions were heard and marked fully submitted on November 6, 2008.

II. THE MOTION TO STAY IS GRANTED

The Federal Arbitration Act (“FAA”) provides for the “judicial enforcement of privately made agreements to arbitrate.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985). Pursuant to section 2 of the FAA, “[a] written provision in … a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”9 U.S.C. § 2.Section 2 represents “a congressional declaration of a liberal federal policy favoring arbitration agreements ….“ Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); see also Hartford Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir.2001) ( “There is a strong federal policy favoring arbitration as an alternative means of dispute resolution.”). Accordingly, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Mem’l Hosp., 460 U.S. at 24-25.

In the case of international transactions, the “bias in favor of arbitration [ ] is even stronger.” Chelsea Square Textiles, Inc. v. Bombay Dyeing & Mfg. Co., Ltd., 189 F.3d 289, 294 (2d Cir.1999) (internal quotations and citation omitted); see also David L. Threlkeld & Co., Inc. v. Metallgesellschaft Ltd., 923 F.2d 245, 248 (2d Cir.1991) (“Enforcement of international arbitral agreements promotes the smooth flow of international transactions by removing the threats and uncertainty of time-consuming and expensive litigation.”).

Further, the Inter-American Convention on International Commercial Arbitration, to which both the United States and Peru are signatories, provides that “[a] court having jurisdiction under this chapter may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States.”9 U.S.C. § 303(a).

To determine whether a particular dispute is arbitrable, courts in this Circuit must first determine “(1) whether the parties agreed to arbitrate, and, if so, (2) whether the scope of [that] agreement encompasses the claims at issue.” Bank Julius Baer & Co., Ltd. v. Waxfield, Ltd., 424 F.3d 278, 281 (2d Cir.2005) (internal quotations and citation omitted) (alteration in original). If the parties did agree to arbitrate, a three-part inquiry applies to determine whether the dispute falls within the scope of the arbitration clause. First, “a court should classify the particular clause as either broad or narrow.” Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir.2001). If the clause is narrow, “the court must determine whether the dispute is over an issue that is on its face within the purview of the clause, or over a collateral issue that is somehow connected to the main agreement that contains the arbitration clause.”Id. (internal quotations and citation omitted). Where, however, “the arbitration clause is broad, there arises a presumption of arbitrability and arbitration of even a collateral matter will be ordered if the claim alleged implicates issues of contract construction or the parties’ rights and obligations under it.”Id. (internal quotations and citation omitted).

Here, the parties to the Contract, Telefonica and Exel Peru, expressly agreed to arbitrate “[a]ny dispute arising from the interpretation or execution” of the Contract “in Lima [Peru] subject to the Arbitration Regulations of the National and International Arbitration and Conciliation Center of the Lima Chamber of Commerce.”The arbitration clause is therefore classified as broad because “the language of the clause, taken as a whole, evidences the parties’ intent to have arbitration serve as the primary recourse for disputes connected to the agreement containing the clause,”id. at 225, and the presumption of arbitrability arises and attaches even to collateral matters implicating “issues of contract construction or the parties’ rights and obligations under it.”Id. at 224 (internal quotations and citation omitted.

Through this action, Telefonica seeks to hold defendants liable on the Contract, which was executed between Telefonica and Exel Peru and governed these entities’ relationship with respect to the transportation and delivery of Telefonica’s cargo. Telefonica alleges that Exel failed to deliver the cargo. Thus, as the claims against Exel involve disputes arising from the interpretation and/or execution of the Contract, this matter should proceed through nonappealable arbitration in Lima, Peru, as intended by the parties.

Indeed, Telefonica itself has asked the Court to “accept the Carbin Declaration and Motion as an application for a stay as to it, pending the Peruvian arbitration.”Pl. Mem. of Law in Opp. at 5. Therefore, in view of the applicability of the arbitration agreement to this dispute, the on-going arbitration proceedings in Peru, and the parties’ apparent agreement over the validity of those proceedings, this action will be stayed. In the event that the arbitration is concluded or a settlement reached, this action will remain, if necessary, to enforce any award or settlement.

III. CONTINENTAL’S MOTION TO DISMISS OR TRANSFER IS DENIED

According to Continental, this action should be dismissed or, in the alternative, transferred to the Southern District of Florida on the grounds of forum non conveniens.

“[F]orum non conveniens is a discretionary device permitting a court in rare instances to ‘dismiss a claim even if the court is a permissible venue with proper jurisdiction over the claim.’ “ Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 100 (2d Cir.2000) (quoting PT United Can Co. Ltd. v. Crown Cork & Seal Co., Inc., 138 F.3d 65, 73 (2d Cir.1998)). The common-law doctrine “has continuing application [in federal courts] only in cases where the alternative forum is abroad, and perhaps in rare instances where a state or territorial court serves litigational convenience best.” Sinochem Int’l Co. Ltd. v. Malaysia Int’l Shipping Corp., 549 U .S. 422, 430 (2007) (internal quotations and citation omitted) (alteration in original).

In order to determine whether dismissal is appropriate, “the ‘first level of inquiry’ in a forum non conveniens analysis is to determine what deference is owed a plaintiff’s choice of forum.” DiRienzo v. Philip Servs. Corp., 294 F.3d 21, 28 (2d Cir.2002) (quoting Iragorri v. United Techs. Corp., 274 F.3d 65, 73 (2d Cir.2001). In so doing, “a court should begin with the assumption that a plaintiff’s choice of forum will stand unless the defendant can demonstrate that reasons exist to afford it less deference.”Id. The next step “is to determine if an adequate alternative forum exists. If so, courts must then balance a series of factors involving the private interests of the parties in maintaining the litigation in the competing fora and any public interests at stake.” Wiwa, 226 F.3d at 100 (internal citations omitted).“An alternative forum is adequate if the defendants are amenable to service of process there, and if it permits litigation of the subject matter of the dispute.” Pollux Holding Ltd. v. Chase Manhattan Bank, 329 F.3d 64, 75 (2d Cir.2003).

Once the court determines that an adequate alternative forum exists, the factors set forth in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09 (1947) apply. The private interest factors include,

the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive.

Iragorri, 274 F.3d at 73-74 (quoting Gulf Oil, 330 U.S. at 508). The public interest factors include the following:

(1) administrative difficulties resulting from court congestion; (2) the unfair imposition of jury duty on citizens of a community which has no relation to the litigation; (3) the local interest in having localized controversies decided at home; and (4) the avoidance of unnecessary problems in conflicts of law.

Cyberscan Tech., Inc. v. Sema Ltd., No. 06 Civ. 526(GEL), 2006 WL 3690651, at (S.D.N.Y. Dec. 13, 2006) (citation omitted).

According to Continental, Telefonica is a citizen of Peru, and therefore a foreign plaintiff whose choice of forum in the U.S. is entitled to less deference. See Piper Aircraft Co. v. Reyno, 454 U.S. 235, 256 (1981) ( “Because the central purpose of any forum non conveniens inquiry is to ensure that the trial is convenient, a foreign plaintiff’s choice deserves less deference.”). Even applying a minimal level of deference to Telefonica’s choice of forum, however, Continental has failed to demonstrate that this is one of the “rare circumstances” where forum non conveniens should be applied to dismiss an action where the alternative forum is domestic, rather than foreign. Sinochem, 549 U.S. at 430.

Here, Continental has proposed the United States District Court in the Southern District of Florida as an alternate forum. Because Continental, a Florida corporation, is subject to service of process in the Southern District of Florida and the loss of cargo in Florida is worth over $75,000, the Southern District of Florida is an adequate alternative forum for the adjudication of the present dispute between Telefonica and Continental. Despite its contention, however, that none of the relevant facts or parties are located in the Southern District of New York, Continental has not met its burden of establishing that the private and public factors “strongly” favor dismissal to the extent that they justify disturbing Telefonica’s choice of forum and forcing it to re-file this action in the Southern District of Florida. DiRienzo, 294 F.3d at 30-31;see Iragorri, 274 F.3d at 71 (“[A] court reviewing a motion to dismiss for forum non conveniens should begin with the assumption that the plaintiff’s choice of forum will stand unless the defendant meets [its] burden ….”). In the absence of more compelling arguments, the fact that neither party is located in New York and that the stolen shipment never entered this District is insufficient to establish the “oppressiveness” and “vexation” required to warrant dismissal on forum non conveniens grounds. See Piper Aircraft, 454 U.S. at 241 (citation omitted). As Telefonica points out, given the detailed police and investigative reports that have already been produced, it is likely that no witness testimony will be required with respect to the circumstances surrounding the hijacking in Florida. Indeed, at this stage in the dispute and in light of the stay imposed above, it is in the public interest for this action to remain in this District rather than burdening the parties and the Florida courts with the filing of a new suit in the Southern District of Florida.

Continental has also moved for a transfer of this action pursuant to 28 U.S.C. § 1404(a). That section provides that “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.”28 U.S.C. § 1404(a); see Sinochem, 549 U.S. at 430 (“Congress has codified the doctrine [of forum non conveniens ] and has provided for transfer, rather than dismissal, when a sister federal court is the more convenient place for trial of the action.”). Here too Continental has the burden of showing that transfer is warranted, see D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 106 (2d Cir.2006), and a “plaintiff’s choice of forum should not be disturbed unless the defendants make a clear and convincing showing that the balance of convenience favors defendants’ choice.” Saccoccio v. Relin, Golstein & Crane, LLP, No. 06 Civ. 14351(DLC), 2007 WL 1334970, at(S.D.N.Y. May 7, 2007) (internal quotations and citation omitted).

In determining whether transfer under § 1404 is appropriate, courts consider the following:

(1) the plaintiff’s choice of forum, (2) the convenience of witnesses, (3) the location of relevant documents and relative ease of access to sources of proof, (4) the convenience of parties, (5) the locus of operative facts, (6) the availability of process to compel the attendance of unwilling witnesses, [and] (7) the relative means of the parties.

D.H. Blair, 462 F.3d at 106-07 (citation omitted) (alteration in original). For the same reasons discussed above, Continental has failed to make such a showing, and therefore its motion is denied. However, in the event that either the arbitration or the settlement leaves issues to be tried, leave is granted to Continental to move to dissolve the stay and to renew its motion to transfer.

CONCLUSION

The motion of Exel for a stay is granted, the motion of Continental to dismiss or transfer is denied at this time.

It is so ordered.

S.D.N.Y.,2009.

Rimac Internacional Cia De Seguros Y Reaseguros, S.A. v. Exel Global Logistics, Inc.

Slip Copy, 2009 WL 1868580 (S.D.N.Y.)

END OF DOCUMENT