Opinion
1:23-CV-00846-DII
05-08-2024
CRUZ BACA-RIOS, Plaintiff v. A-ONE COMMERCIAL INSURANCE RISK RETENTION GROUP, INC., ENRIQUE MERINO D/B/A/ MERINO'S TRUCKING AND ENRIQUE METINO D/B/A T&T MOVERS, Defendant
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
DUSTIN M. HOWELL, UNITED STATES MAGISTRATE JUDGE
TO THE HONORABLE UNITED STATES DISTRICT JUDGE
Before the Court is Defendant A-ONE Commercial Insurance Risk Retention Group's Motion to Dismiss Cruz Baca-Rios's First Amended Complaint, Dkt. 10, and all related briefing. After reviewing these filings and the relevant case law, the undersigned issues the following report and recommendation recommending that the motion be granted.
I. BACKGROUND
This is a declaratory judgment action based on an automobile collision involving Plaintiff Baca-Rios and Defendant Enrique Merino on April 17, 2019, in Leon County, TX. Dkt. 5, at 4-5. Baca-Rios filed a personal injury claim against Merino and Juan De Dios Guzman in the District Court of Harris County, Texas, 152nd Judicial District, seeking damages in excess of $1,000,000 (the “underlying lawsuit”). Id. at 5. Baca-Rios alleges that at the time of the collision, Merino was driving a truck insured by Defendant A-ONE. Id. at 6. The subject policy included an MCS-90 endorsement, which essentially guarantees that the insurer will pay final judgments against the insured in cases involving vehicles maintained or operated by the insured, regardless of whether those vehicles are described in the policy. Id. at 49. Additionally, the MCS-90 endorsement provides that “upon failure of the [insurance] company to pay any final judgment recovered against the insured as provided herein, the judgment creditor may maintain an action in any court of competent jurisdiction against the [insurance] company to compel such payment.” Id. at 9.
A-ONE has filed suit in the United States District Court for the Central District of California seeking a declaratory judgment that it does not have a duty to defend or indemnify Merino in Baca-Rios's suit in Harris County. Id. A-ONE alleges that it is not obligated to pay a judgment obtained against Merino by Baca-Rios under the policy or the MCS-90 endorsement, arguing that the Policy was void and the endorsement has no effect. Id. at 9.
In this case, Baca-Rios has filed a declaratory judgment action seeking a declaration stating: (1) “even if the policy is void ... the MCS-90 endorsement remains in force” and (2) that A-ONE is obligated to pay any final judgment recovered against Merino by Baca-Rios in the underlying suit under the terms of the MCS-90, which is governed by federal law. Id. at 9-14. A-ONE moves to dismiss Baca-Rios's First Amended Complaint arguing that Baca-Rios does not have standing to pursue a claim for insurance-policy benefits under the A-ONE policy issued to Merino or under the MCS-90 endorsement. Dkt. 10, at 1. Specifically, A-ONE argues that Baca-Rios was not a party to the insurance contract between A-ONE and Merino, Merino has not yet been found liable in the underlying suit, and Baca-Rios has not yet obtained a judgment against Merino for which A-ONE would be liable in the underlying suit. Id. at 3. A-ONE contends that, as a third-party claimant who has not obtained a judgment against an insured defendant, Baca-Rios has no standing to proceed against A-ONE. Id. at 3.
II. LEGAL STANDARD
Pursuant to Rule 12(b)(6), a court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In deciding a 12(b)(6) motion, a “court accepts ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)). “To survive a Rule 12(b)(6) motion to dismiss, a complaint ‘does not need detailed factual allegations,' but must provide the plaintiff's grounds for entitlement to relief-including factual allegations that when assumed to be true ‘raise a right to relief above the speculative level.'” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). That is, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).
A claim has facial plausibility “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “The tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. A court ruling on a 12(b)(6) motion may rely on the complaint, its proper attachments, “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir. 2008) (citations and internal quotation marks omitted). A court may also consider documents that a defendant attaches to a motion to dismiss “if they are referred to in the plaintiff's complaint and are central to her claim.” Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004). But because the court reviews only the well-pleaded facts in the complaint, it may not consider new factual allegations made outside the complaint. Dorsey, 540 F.3d at 338. “[A] motion to dismiss under 12(b)(6) ‘is viewed with disfavor and is rarely granted.'” Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011) (quoting Harrington v. State Farm Fire & Cas. Co., 563 F.3d 141, 147 (5th Cir. 2009)).
III. DISCUSSION
Baca-Rios first contends that his third-party suit for declaratory judgment against A-ONE is justiciable now, before a final judgment in the underlying personal injury case against Merino case is issued, because A-ONE has challenged its duty to defend and indemnify Merino by filing its suit in California. Dkt. 14, at 2. Baca-Rios next argues that Texas's “no direct action” rule is not implicated here because he seeks a declaration as to the construction and validity of the MCS-90 endorsement, rather than a declaration that A-ONE is liable under the policy it issued to Merino. Id. at 2.
A. Justiciability
Texas law generally mandates that an insurer's duty to indemnify its insured is not justiciable until a final judgment has been secured against the insured. Firemen's Ins. Co. of Newark, N. J. v. Burch, 442 S.W.2d 331, 333-34 (Tex. 1968). However, the duty to defend and the duty to indemnify are justiciable before final judgment in an underlying suit when “the same reasons that negate the duty to defend likewise negate any possibility the insurer will ever have a duty to indemnify.” Farmers Texas Cnty. Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 84 (Tex. 1997). By way of example, in Griffin, gunshots from a passing vehicle injured a pedestrian, the pedestrian sued the driver whose passengers fired the shots, and the driver invoked his insurer's duty to defend him under his personal automobile policy. Id. at 82. The insurer then filed a declaratory-judgment action challenging its duty to defend and indemnify the driver, arguing that the type of injury sustained fell out of the category of “auto accidents” covered under the policy and that the pedestrian did not claim his injuries were caused by an auto accident. Id. The court in Griffin held that the insurer's duty-to-indemnify claim was justiciable before final judgment in the underlying suit because “[n]o facts can be developed in the underlying tort suit that can transform a drive-by shooting [which was not covered under the subject policy] into an ‘auto accident' [which was covered under the subject policy].” Id.
Baca-Rios claims that, based on Griffin, his declaratory-judgment action is justiciable now because A-ONE has challenged its duty to defend and indemnify Merino by filing a declaratory-judgment action in federal court in California. Dkt. 14, at 18.But Griffin applies to the justiciability of an insurer's declaratory judgment actions concerning duties to defend and indemnify and only when “the same reasons that negate the duty to defend likewise negate any possibility the insurer will ever have a duty to indemnify.” Solstice Oil & Gas I, L.L.C. v. Seneca Ins. Co., 655 Fed.Appx. 221, 224 (5th Cir. 2016) (citing Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 529 (5th Cir. 2004)). Therefore, the Griffin exception does not apply here, and Baca-Rios does not cite any case in which a claimant brought a duty-to-indemnify claim that was justiciable before the underlying suit concluded.
Specifically, A-ONE alleges certain misrepresentations by Merino about who was driving the subject vehicle negate A-ONE's duties to Merino. Dkt. 14, at 18. A-ONE also claims that the MCS-90 endorsement should be rescinded on the same grounds. Id. at 10.
Additionally, in each of the cases where a third-party claimant was allowed to intervene or was found to have a protectable interest against an insurer, judgment against the insured had already been obtained. See Bituminous Cas. Corp. v. Garcia, 223 F.R.D. 308, 310 (N.D. Tex. 2004) (insurer filed declaratory-relief action that ended with the insurer obtaining a default judgment, after which claimant sought to intervene in the insurer's action to vacate the default judgment); Certain Underwriters at Lloyd's of London v. Winter, No. 3:15-CV-01997-N, 2015 WL 12732628, at *2 (N.D. Tex. Nov. 4, 2015) (court grants motion to intervene in insurer's litigation after a default judgment has been entered against insured); Century Sur. Co. v. Hardscape Const. Specialties, Inc., No. CIV.A. 4:05CV285Y, 2006 WL 1948063, at *5 (N.D. Tex. July 13, 2006), aff'd, 578 F.3d 262 (5th Cir. 2009) (court allows insurer's action against third-party claimant to go forward in a declaratory relief action brought by the insurer despite claimant's objections.).
B. Inapplicability of the No-Direct-Action Rule
“[T]he general rule is that an injured party cannot sue the [defendant's] insurer directly until the [defendant's] liability has been finally determined by agreement or judgment.” Turner v. Cincinnati Ins. Co., 9 F.4th 300, 309 (5th Cir. 2021) (internal citation omitted). This rule is known as the “no-direct-action rule.” Several Texas courts of appeals have held that the no-direct-action rule is jurisdictional because without a judgment or agreement establishing the insured defendant's liability, there is no justiciable controversy between the third-party plaintiff and the insurer. See Landmark Am. Ins. Co. v. Eagle Supply & Mfg. L.P., 530 S.W.3d 761, 772 (Tex. App.- Eastland 2017, no pet.) (analyzing the rule as an issue of ripeness); Auzenne v. Great Lakes Reinsurance, PLC, 497 S.W.3d 35, 37-38 (Tex. App.-Houston [14th Dist.] 2016, no pet.) (analyzing the rule as an issue of ripeness); Ohio Cas. Ins. Co. v. Time Warner Ent. Co., L.P., 244 S.W.3d 885, 888-89 (Tex. App.-Dallas 2008, pet. denied) (analyzing the rule as an issue of standing).
Baca-Rios contends that the no-direct-action rule is not implicated here because he seeks a declaration as to the construction and validity of the MCS-90 endorsement, rather than a declaration that A-ONE is liable under the policy issued to Merino. Dkt. 14, at 2. Baca-Rios primarily relies on Unlimited Services, LLC v. Anadarko Petroleum Corp. for the proposition that the no-direct-action rule is not implicated when a party, even one that is not a party to the underlying contract, seeks a declaration regarding the construction and validity of an insurance contract rather than a declaration requiring the insurer to indemnify or defend the insured in the underlying personal injury action. No. 4:19-CV-4414, 2020 WL 5046349, at *3 (S.D. Tex. Aug. 6, 2020), report and recommendation adopted, No. CV 4:19-4414, 2020 WL 5039499 (S.D. Tex. Aug. 25, 2020).
In that case, Anadarko Petroleum Corporation had two subcontractors, Unlimited Services and Energes Services. Id. at *1. An explosion at an Anadarko worksite harmed two Energes employees. Id. In the underlying personal-injury lawsuits, it was alleged that Unlimited was responsible for the explosions that caused Energes's employees' injuries. Id. Unlimited sued Anadarko seeking a declaration that Anadarko owed a duty to defend and indemnify Unlimited under the terms of the parties' Master Service Agreement (“MSA”). Id. Anadarko then filed a Third-Party Complaint against Energes's insurers, St. Paul Mercury Insurance Company and The Travelers Companies, seeking declaratory judgment that: (1) Anadarko was an additional insured under Energes's insurance policy, and (2) clarified whether Energes's insurance policy with The Travelers Companies met Energes's obligations under the MSA between Energes and Anadarko. Id. at *2.
The Travelers Companies filed a 12(b)(1) motion to dismiss for lack of subjectmatter jurisdiction, arguing that Anadarko did not yet have standing to sue the insurers because Energes's contractual obligations under the MSA had not yet been established by final judgment. Id. The Travelers Companies argued, accordingly, that Anadarko's declaratory-judgment action was barred by the no-direct-action rule and ripeness doctrine. Id. Anadarko disputed that its claim was not justiciable and argued that its declaratory judgment action was “actually a question of contract construction, which is an immediate and actual controversy within an interested party's right to be heard” rather than duty-to-indemnify. Id. In its analysis, the Court addressed the no-direct-action rule stating that it establishes that “a third-party claimant cannot sue an insurer unless its insured has a judgment imposing a legal obligation to pay the injured party damages, or the insured has agreed to that obligation.” Id. (citing Fireman's Fund Ins. Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA., No. CIV.A. H-12-3237, 2014 WL 1247895, at *4 (S.D. Tex. Mar. 25, 2014)). However, it found that the rule did not apply to Anadarko's declaratory judgment action because Anadarko was seeking a different kind of relief than was sought in cases where the no-directaction rule was a bar to suit. Id. at *2-3. In those cases, the plaintiff
sought to enforce the insurer's duty to indemnify or pay ... [but] [i]n Anadarko's case, it only seeks court interpretation of Energes' insurance policy with Travelers and its relationship with the [Master Service Agreement] between Energes and Anadarko. Unlike cases that prematurely establish the defendant's liability, questions of “[c]onstruction and validity of contracts are the most obvious and common uses of the declaratory judgment action.”Id. at *3 (citing Trinity Universal Ins. Co. v. Sweatt, 978 S.W.2d 267, 271 (Tex. App.- Fort Worth 1998, no pet.)). In particular, the court distinguished between cases in which a judgment stated that defendant “will have to pay the limits of the policy” as opposed to cases where a judgment “simply defined those limits.” Id. (citing Foust v. Ranger Ins. Co., 975 S.W.2d 329, 332 (Tex. App.-San Antonio 1998, pet. denied)). In the second instance there “is no need for there to be a determination of liability in the underlying suit before a determination can be made regarding whether the terms of the insurance policy at issue contemplate” the sequence of events giving rise to the underlying suit, and “[t]herefore the resolution of the issue . is not based on hypotheticals or contingencies.” The court compared Anadarko's request for relief to relief sought in Transp. Ins. Co. v. WH Cleaners, Inc., 372 S.W.3d 223, 228-29 (Tex. App.-Dallas 2012, no pet.), where the party seeking declaratory relief sought “sought clarification on whether the plaintiff was an additional insured, and the legal validity of a pollution exclusion.” Id. at *3. Similarly, Anadarko sought “declaratory judgment that it is an additional insured under the insurance policy and clarification whether Energes' insurance policy with Travelers meets its obligations under the MSC.” Id. The court concluded that because “Anadarko is seeking a declaration to resolve questions related to the construction and validity of contracts, neither the no-direct-action rule nor the ripeness doctrine precludes the claim.” Id.
Baca-Rios contends that it seeks “the same kind of Declaratory relief as the plaintiff in Anadarko sought ... [t]he primary relief sought by Baca-Rios is a declaration that the MCS-90 Endorsement attached to A-ONE's policy, which operates independently of the policy as a form of surety, is valid despite any purported misrepresentations by Merino before or after the policy was issued.” Dkt. 14, at 12. Therefore, “[t]he no-direct-action rule is . not implicated here because the gravamen of Baca-Rios' claims for declaratory relief revolve around the validity of the MCS-90 Endorsement, a de facto suretyship created by federal law, instead of A-ONE's liability under the policy it issued Merino.” Id.
Turning to the complaint, however, Baca-Rios clearly requests “entry of a declaratory judgment that A-ONE is obligated to pay any final judgment recovered against Merino by Baca-Rios in the Underlying Lawsuit under the terms of the MCS-90 endorsement.” Dkt. 5, at 14. That request is not merely a question of construction and validity but is closer to a question of whether A-ONE will be liable or “will have to pay.” As explained in Anadarko, in cases in which a judgment states that a party “will have to pay,” there are determinations in the underlying suit that bear on the determination of whether a party “will have to pay,” thus resolution of the case is based on hypotheticals and contingencies. Here, the determination of whether A-ONE is obligated to pay any final judgment recovered against Merino by Baca-Rios under the MCS-90 is contingent on the issues at stake in the California lawsuit, where the validity of the insurance contract and MCS-90 agreement is disputed. If Merino's alleged misrepresentations do not vitiate the terms of the policy and MSC-90, and if Merino is found liable and A-ONE obtains a final judgment, then A-ONE may be obligated to pay. In this instance, multiple contingencies and hypotheticals underlie the resolution of Baca-Rios's declaratory-judgment action seeking a declaration that “A-ONE is obligated to pay any final judgment recovered against Merino by Baca-Rios in the Underlying Lawsuit under the terms of the MCS-90 endorsement.” Dkt. 5, at 14. Therefore, the no-direct-action rule applies here, and Baca-Rios's claim is barred at this time and should be dismissed without prejudice.
To be certain, if the insurance policy and MCS-90 are found to be valid, and if Merino is found liable, and Baca-Rios obtains a final judgment, under the terms of the MCS-90 Baca-Rios will have a cause of action against A-ONE. See Dkt. 5, at 8-9 (MCS-90 endorsement stating: “in consideration of the premium stated in the policy to which this endorsement is attached, the insurer (the company) agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability.... It is further understood and agreed that, upon failure of the company to pay any final judgment recovered against the insured as provided herein, the judgment creditor may maintain an action in any court of competent jurisdiction against the company to compel such payment.”).
IV. RECOMMENDATION
In accordance with the foregoing discussion, the undersigned RECOMMENDS that the District Court GRANT A-ONE's Motion to Dismiss, Dkt. 10, and DISMISS Baca-Rios's declaratory judgment action WITHOUT PREJUDICE.
V. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The district court need not consider frivolous, conclusive, or general objections. See Battle v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987). A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen days after the party is served with a copy of the Report shall bar that party from de novo review by the district court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the district court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).