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Citizens Insurance Company of America v. Phoenix Bay State Construction Co., Inc.

Superior Court of Maine, Cumberland

October 4, 2017



          Nancy Mills, Justice, Superior Court.

         Before the court is cross-claim defendant North River Insurance Company's motion to dismiss defendant Maine Medical Center's cross-claim. For the following reasons, North River's motion to dismiss MMC's cross-claim is denied.


         The present action stems from an underlying lawsuit brought by MMC against defendants William A. Berry & Son, Inc. and Suffolk Construction Company, Inc. in the United States District Court for the District of Maine. (Compl. ¶¶ 8-9; MMC's Ans. ¶¶ 8-9.) Phoenix Bay State Construction Co., Inc. (Phoenix) is a third-party defendant in the underlying lawsuit. (Compl. ¶ 10; MMC's Ans. ¶ 10.) In that action, MMC is seeking to recover damages against Berry and Suffolk for alleged property damage to substantial additions made to the hospital located at 22 Bramhall Street in the City of Portland, Maine. (Compl. ¶ 11; MMC's Ans. ¶ 11.) MMC hired Berry to manage and lead the construction of the additions.[1] (MMC's Cross-cl. ¶ 5.) Berry then hired Phoenix as a subcontractor to perform certain work for the additions. (Id.) The construction began in 2006. (Compl. ¶ 11; MMC's Ans. ¶ 11.)

         MMC's contract with Berry mandated all subcontractors procure and maintain insurance coverage for their work on the addition and name MMC as an additional insured on the insurance policies. (MMC's Cross-cl. ¶ 83.) In accordance with that requirement, Berry's subcontract with Phoenix provided as follows: "[Phoenix], at its own expense shall procure, carry and maintain on all its operations hereunder policies of insurance with coverage at a minimum in the amounts and limits as provided in Rider B . . . ." (Id. ¶ 80.) Moreover, the subcontract obligates Phoenix to "indemnify, defend and hold . . . [MMC] harmless to the fullest extent allowed by law from any and all loss, damage, cost or expense ... resulting from or arising from the negligence of [Phoenix] . . . ." (Id. ¶ 84.) MMC asserts Phoenix procured insurance policies through Employers' Fire Insurance Company (EFTC), Citizens Insurance Company of America (Citizens), and North River to fulfill the subcontract insurance requirements. (Id. ¶¶ 25, 85.) Phoenix purchased umbrella liability coverage policies from North River for consecutive year-long periods beginning December 31, 2008 and covering until at least December 31, 2014. (Id.¶ 68.) MMC also alleges it may be an additional insured under all of the policies. (Id. ¶¶ 27, 87.)[2]

         Citizens initiated this action on February 10, 2017 when it filed a complaint against defendants Phoenix, Berry, Suffolk, MMC, and North River. On March 29, 2017, Citizens moved to dismiss its claims against North River. On July 19, 2017, the court granted the motion. Prior to dismissal of those claims, on April 10, 2017, MMC filed a cross-claim against North River.[3]MMC's cross-claim seeks a judgment declaring North River has a duty to indemnify MMC for any damages for which Phoenix is found liable in the underlying suit in excess of the EFIC and Citizens commercial general liability policies' coverage limits or, in the alternative, if the EFIC and Citizens policies do not provide coverage, that North River has a duty to indemnify MMC for all of the damages for which Phoenix is found liable up to the policy limits.

         On May 19, 2017, North River filed its motion to dismiss MMC's cross-claim. MMC opposed the motion on June 9, 2017. North River filed a reply on June 16, 2017.


         1. Standard of Review

         "A motion to dismiss pursuant to M.R. Civ. P. 12(b)(6) tests the legal sufficiency of the [cross-claim]." Seacoast Hangar Condo. II Ass'n v. Martel, 2001 ME 112, ¶ 16, 775 A.2d 1166 (quoting New Orleans Tanker Corp. v. Dep't of Transp., 1999 ME 67, ¶ 3, 728 A.2d 673). When the court reviews a motion to dismiss, "the [cross-claim] is examined 'in the light most favorable to the [cross-claim] plaintiff to determine whether it sets forth elements of a cause of action or alleges facts that would entitle the [cross-claim] plaintiff to relief pursuant to some legal theory.'" Lalonde v. Cent. Me. Med. Ctr., 2017 ME 22, ¶ 11, 155 A.3d 426 (quoting Moody v. State Liquor & Lottery Comm'n, 2004 ME 20, ¶ 7, 843 A.2d 43). Allegations in the cross-claim are deemed true, Id., and "dismissal should only occur when it appears beyond doubt that a plaintiff is entitled to no relief under any set of facts that he might prove in support of his claim." Moody, 2004 ME 20, ¶ 7, 843 A.2d 43 (quoting McAfee v. Cole, 637 A.2d 463, 465 (Me. 1994)) (internal quotations omitted).

         2. Reach and Apply

         North River argues the Maine and Massachusetts[4] reach and apply statutes bar MMC from bringing a direct action against North River absent the entry of final judgment against its insured in the underlying case. See 24-A M.R.S. § 2904 (2016);[5] Mass. Gen. Laws ch. 175, § 113 (2016);[6] Mass. Gen. Laws ch. 214, § 3(9) (2016).[7] MMC counters that because its cross-claim is not a reach and apply action, the statutes are not applicable.

         Maine's reach and apply statute bars civil actions "brought against an insurer to reach and apply . . . insurance money until 20 days shall have elapsed from the time of the rendition of the final judgment against the judgment debtors." Allen v. Pomroy, 277 A.2d 727, 728 (Me. 1971) (quoting § 2904). Massachusetts' reach and apply "statutes affording a remedy for an injured plaintiff against an insurer issuing a liability policy require as a prerequisite to suit 'the recovery of a final judgment' against the insured wrongdoer." Rogan v. Liberty Mut. Ins. Co., 305 Mass. 186, 188, 25 N.E.2d 188, 189 (1940) (citing ch. 175, §§ 112, 113; ch. 214, § 3).

         In its cross-claim, MMC does not seek damages; it seeks a declaratory judgment addressing North River's duty to indemnify. (MMC Cross-cl. 55 88-91.) Reach and apply statutes do not bar declaratory judgment actions. See Dorchester Mut. Ins. Co. v. Legeyt, 25 Mass. L. Rep. 262 * 18 (Mass. Super. Ct. 2008). In Legeyt, the Massachusetts Superior Court found before there is a final judgment against the insured, "an injured party may seek declaratory relief against another's insurer [because] an injured party's interest in the tortfeasor's insurance policy is sufficiently present or immediate, once the injury has been sustained, to allow the injured party to seek declaratory relief." Id. * 14-16. The court distinguished the declaratory judgment action from a reach and apply action in a footnote. Id. * 14 n.8 (stating "It is clear that, in the absence of a final judgment against [the insured], [the injured party] has no right to reach and apply the Policy under [chapter] 214, §3(9).")

         In Maine, a determination of whether an insurer has a duty to indemnify is based upon the facts ultimately proven in the underlying claim. Am. Policyholders' Ins. Co. v. Cumberland ColdStorage Co., 373 A.2d 247, 250 (Me. 1977). In limited circumstances, a declaratory judgement action to determine whether the duty exists can be brought before the conclusion of an underlying suit. N. E. Ins. Co. v. Young, 2011 ME 89, ¶ 15, 26 A.3d 794. "[E]arlier consideration of the duties to defend and indemnify [is appropriate] when an insurer disputes those duties based on facts that are not related to the question of the insured's liability, such as 'nonpayment of a premium, cancellation of a policy, failure to cooperate or lack of timely notice.'" Id. (quoting Patrons Oxford Mut. Ins. Co. v. Garcia,1998 ME 38, ¶ 7, 707 A.2d 384.) "A declaratory judgment action is appropriate in such circumstances because 'the coverage dispute depends entirely on the relationship between the insurer and the insured, not on facts to be determined in the underlying litigation.'" Id. Here, in the cross-claim against North River, MMC raises the issue of ...

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