MMG Insurance Co. v. Podiatry Insurance Co. of America
Docket: 2:16-cv-00605-JAW
Court: District Court, D. Maine; April 18, 2017; Federal District Court
An insurance company, MMG Insurance Company (MMG), initiated a lawsuit against Podiatry Insurance Company of America (PICA) seeking reimbursement for its share of a settlement in an underlying personal injury case. The suit is founded on an agreement between the insurers to allocate the settlement while reserving the right to recover costs based on coverage defenses. MMG's claims include three counts: breach of agreement, equitable contribution, and equitable subrogation. PICA moved to dismiss all counts, but the court dismissed the equitable contribution claim, determining it inapplicable when one party seeks to eliminate its entire loss burden. However, the court allowed the breach of agreement and equitable subrogation counts to proceed, finding that MMG had sufficiently alleged facts that could support recovery based on their contractual agreement and equitable principles.
The procedural history details that MMG filed its initial complaint on November 10, 2016, in state court, which PICA removed to federal court on December 7, 2016. PICA subsequently filed a motion to dismiss. MMG then amended its complaint on December 27, 2016, adding clarity and new counts, which it was permitted to do under Federal Rule of Civil Procedure 15(a). The amended complaint specifically includes reapportionment/contribution by agreement, equitable contribution, and equitable subrogation.
MMG claims it reserved the right to seek recovery from PICA and that its settlement payment was not made voluntarily, but as an insurer facing claims. Consequently, the pending motion to dismiss by PICA is rendered moot because the amended complaint is the operative pleading. However, PICA had preemptively addressed potential claims for equitable contribution and subrogation in its motion to dismiss and reply. Dismissing PICA’s motion without prejudice would be inefficient, as it would likely lead to a refiled motion with similar arguments. The court will consider the amended complaint for the purposes of this motion.
MMG is an insurance company licensed in Maine, while PICA issues professional liability insurance policies in the state. The legal matter arose from a May 15, 2013, incident involving William Dickson, who fell and sustained injuries while being treated by podiatrist Peter Ocampo, leading to a civil action filed by Dickson’s estate against Ocampo. Both MMG and PICA agreed to defend Ocampo under a reservation of rights and participated in mediation on June 2, 2016, without resolving their coverage dispute. They ultimately agreed to settle the civil claims, contributing equally while reserving their rights to seek recovery from each other. MMG provided a Businessowners policy to Southern Maine Foot and Ankle, P.A. at the time of the incident, which included an exclusion for professional services related to bodily injury.
PICA issued a professional liability insurance policy to Dr. Ocampo and Southern Maine Foot and Ankle, P.A. (Policy No. 1PD0014194), which was effective at the time of a 2013 accident. The policy defined "professional services" as medical services, including treatment, diagnosis, surgical intervention, and expert opinions within the provider's practice scope.
PICA filed a motion to dismiss MMG's claims for equitable subrogation and contribution based on the voluntary payment doctrine, arguing that MMG's partial settlement payment constituted a voluntary payment, thus barring recovery. PICA distinguished between equitable contribution and subrogation, asserting that equitable contribution applies when multiple insurers cover the same risk, which MMG did not claim. PICA further contended that MMG's claims were barred by a settlement agreement that lacked a reservation of rights for subrogation.
In opposition, MMG argued that PICA overlooked its allegation that both insurers contributed to the settlement while reserving their rights to recover costs based on coverage disputes. MMG challenged PICA's definition of voluntary payment, asserting that it should not apply to all parties involved in litigation who might later be found not liable. MMG emphasized public policy favoring dispute settlement and maintained that an insurer paying a loss is equitably subrogated to its insured's claims against other responsible parties. It argued that the voluntary payment doctrine did not apply in this case, similar to the equitable contribution context.
MMG contends that PICA's release argument is an affirmative defense, inappropriate for a motion to dismiss since the release document is neither part of the pleadings nor essential to any claims. MMG asserts that the court should disregard the release, but if considered, it should also evaluate MMG's extrinsic evidence. MMG further clarifies that the release pertains to an agreement between Dr. Ocampo and the Estate of Dickson, not involving either party in the current dispute, hence it does not affect MMG's claims. MMG emphasizes that the mediation agreements between PICA and MMG govern the situation.
In response, PICA argues that MMG lacks a valid cause of action for contribution by agreement, claiming there is no express agreement between the parties regarding the allocation or indemnification of settlement amounts. PICA highlights that both parties are sophisticated insurers represented by counsel and that MMG has not alleged any formal agreement to support its claim. PICA also disputes MMG's equitable contribution claim, asserting it improperly seeks to shift the entire loss to PICA rather than apportion it. Furthermore, PICA argues that MMG's equitable subrogation claim fails since Dr. Ocampo has released all claims against PICA after receiving full indemnification, leaving MMG with no rights to subrogate.
The legal standard for dismissing a complaint under Rule 12(b)(6) requires that the complaint must state a claim for relief that is plausible on its face. The complaint must include sufficient factual matter accepted as true, distinguishing factual allegations from conclusory legal ones. The court determines if the factual allegations support a reasonable inference of the defendant’s liability.
In its Amended Complaint, MMG has alleged three counts against PICA: Count I for Reapportionment/Contribution by Agreement, Count II for Equitable Contribution, and Count III for Equitable Subrogation. PICA contends that MMG is barred from pursuing these actions based on the Settlement Agreement and Release from the underlying case and that MMG fails to state a claim for any of the counts.
PICA asserts that MMG's claims are barred by a Settlement Agreement and Release from a prior action, which it includes with its motion. MMG opposes this, claiming the Court should not consider the Settlement Agreement at this stage. Affirmative defenses can be raised in a motion to dismiss, but the facts for such a defense must be clear from the plaintiff's pleadings. If extraneous documents are introduced, the motion may be converted to a motion for summary judgment, provided that all parties have a chance to present relevant material. However, there is an exception for undisputed documents, official public records, documents central to the plaintiff’s claim, or those referenced in the complaint. The Settlement Agreement qualifies under this exception, as MMG implicitly refers to it by discussing the insurers' mediation and settlement contributions. The Court infers that the agreement between MMG and PICA led to the Settlement Agreement and Release, as they could not resolve their coverage disputes and agreed to settle with each reserving the right for recovery. PICA’s liability is tied to the circumstances of the prior settlement, making the Settlement Agreement central to the current issues. MMG does not contest the authenticity of the Settlement Agreement, allowing the Court to consider it for this motion based on the established criteria.
The Court will evaluate the affidavit and correspondence from MMG regarding mediation and the claimed agreement to reserve recovery rights, as these documents are crucial to MMG's claims. PICA's affirmative defense must unequivocally demonstrate that the plaintiff's action is barred, a standard PICA has failed to meet. The Release from the underlying action discharges the Released Parties from all claims, encompassing various types of damages and personal injuries related to the occurrence. The "Undersigned" includes John Dickson, as representative of the Estate of William Dickson, and Yvonne Dickson, while the "Released Parties" encompass Peter Ocampo and all associated individuals and entities. This Settlement Agreement pertains to all claims arising from the accident between the Estate of Dickson and Dr. Ocampo, with the Estate releasing Dr. Ocampo and all potentially liable parties in exchange for payment. Despite "insurance carriers" being among those released, this does not imply that the release applies to MMG's claims against PICA stemming from the settlement. PICA's cited cases, including Butters v. Kane, involve different circumstances and policy considerations, thus not supporting PICA's argument effectively.
After the settlement, Mr. Kane sought to hold Mr. Butters accountable for his share of the settlement amount related to Ms. Butters’ damages. A jury determined that Mr. Butters was thirty percent liable. Mr. Butters appealed, claiming that the settlement barred Mr. Kane’s contribution claim. The Maine Supreme Judicial Court clarified that in Maine, the phrase “all causes of action” in a general release is typically broad enough to encompass contribution rights unless explicitly excluded. Although Mr. Kane did not sign the settlement release, the court ruled that, in the absence of an explicit reservation of rights, the settlement constituted a complete resolution of all claims between the parties arising from the same incident. The court referenced the Missouri case Lugena v. Hanna, which emphasized that settling a claim implies an admission of negligence, and parties cannot take inconsistent positions regarding their liability. The Butters Court noted that this rationale applies solely to immediate parties to the settlement. This limitation was reinforced in Brown v. Manchester, where the Maine Law Court declined to extend the rule to other named releasees. Additionally, in American National Fire Insurance Company v. York County, a federal judge upheld this limitation, indicating that the coordinated defense of York County involved multiple insurers, but did not alter the established principles of release and contribution rights.
After multiple mediations, the Risk Pool, American National, York County, and other insurers reached a settlement for a class action lawsuit, which was subsequently approved by the Court. A settlement agreement was signed, releasing York County and American National from claims. Following this, American National filed a lawsuit against York County for proceeds it believed were owed under its policy. York County defended itself by citing Butters v. Kane, asserting that the class action settlement without a reservation of rights resulted in complete accord and satisfaction of all claims. The district court rejected this defense, clarifying that the Butters rule applies only to immediate parties of the settlement agreement, and concluded that neither York County nor American National were immediate parties. The court emphasized that adhering strictly to the Butters rule aligns with public policy, as the case's coverage issues were unrelated to the merits of the underlying action, and allowing insurers to negotiate settlements without intertwining coverage disputes promotes settlement efficiency.
In Count I of the lawsuit, MMG claims "Reapportionment/Contribution by Agreement." PICA contests this claim, arguing that MMG failed to demonstrate an express agreement for litigation regarding allocation or indemnification beyond common law rights. The Court disagreed, noting that MMG's Amended Complaint explicitly states that MMG and PICA agreed to contribute to the settlement while reserving their rights to recover amounts paid based on their respective coverage defenses. Consequently, both insurers settled the claims by making equal contributions while maintaining their rights to address coverage disputes independently.
PICA argues that the absence of a written agreement precludes any claims of an agreement between MMG and PICA. However, the only written document relevant to this case is the Confidential Settlement Agreement and Release, which does not include any provisions for litigation between the two parties. While PICA could have a valid argument if the Settlement Agreement were the sole agreement in question, MMG’s Amended Complaint asserts the existence of two agreements: 1) the written Settlement and Release signed by the Dickson Estate in favor of Dr. Ocampo and others, and 2) an oral agreement between MMG and PICA to resolve coverage issues post-settlement. The Court, at this stage, must accept the allegations in the Amended Complaint as true and only requires MMG to present a plausible claim for relief. MMG has successfully alleged that an express agreement existed to reserve rights for recovery based on coverage defenses, leading to the denial of PICA’s motion to dismiss Count I.
Count II addresses the doctrine of equitable contribution, recognized in Maine, which mandates that parties sharing a common obligation must equally share the burdens. Although Maine law has not definitively addressed whether this doctrine applies to claims between insurers, the First Circuit has determined that equitable contribution allows an insurer that has paid more than its share of a loss to seek reimbursement from other insurers equally liable for the obligation.
MMG claims equitable contribution from PICA based on its assertion that Dr. Ocampo's liability for William Dickson's injuries falls under the PICA policy, while being excluded from MMG's policy. MMG argues it should not have indemnified Dr. Ocampo and that PICA bears the sole liability. However, the doctrine of equitable contribution requires parties to share a common obligation, which does not apply here since MMG seeks to avoid any obligation and demands full reimbursement for its payment to Dr. Ocampo. Consequently, the motion to dismiss Count II is granted.
In contrast, MMG's claim for equitable subrogation is founded on different principles. Maine law recognizes equitable subrogation, which can arise from contract or law and is intended to ensure that the party who should rightfully bear the obligation does so. This doctrine involves substituting one party in place of another concerning a debt or claim. It is rooted in principles of restitution and unjust enrichment, requiring a balance of equities among parties. Unlike contribution, subrogation can relieve an insurer of the total loss burden, which MMG seeks. PICA contends that MMG is barred from this claim due to the voluntary payment doctrine, which states that a party cannot seek subrogation after voluntarily satisfying another's obligation without a legal or moral duty. However, Maine law interprets "volunteer" narrowly, favoring the liberal application of subrogation, suggesting that doubts about volunteer status should be resolved against it.
The Maine Law Court clarified that a party is not considered a volunteer if they make a payment under a mistaken belief of obligation or to protect their interests, as supported by legal precedent. MMG contends its payment was not voluntary but made to avoid litigation as claims were asserted against it. PICA argues that Dr. Ocampo, having been fully indemnified by MMG and PICA under a Confidential Settlement Agreement, has no claims against PICA for which MMG can seek subrogation. The Court disagrees, noting that subrogation allows MMG to step into Dr. Ocampo's legal position without acquiring greater rights than he had. The release in the settlement agreement does not extend to claims against insurers that were not parties to it. Furthermore, MMG alleges an oral agreement between the insurers regarding the coverage issue, suggesting that equitable subrogation principles could apply given MMG’s payment of part of the settlement. The Court denied PICA’s motion to dismiss Count III, affirming that equitable subrogation can address wrongful payments, as asserted by MMG. The Court granted PICA’s motion to dismiss Count II, while denying the motion concerning Counts I and III. The Court accepted the well-pleaded allegations in the Amended Complaint, deeming the grounds for dismissal based on MMG's failure to identify a cause of action as moot due to the clarity provided in the Amended Complaint.
