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Essex Insurance Co. v. Liberty Mutual Insurance Co.

November 23, 2010

ESSEX INSURANCE COMPANY
v.
LIBERTY MUTUAL INSURANCE COMPANY



The opinion of the court was delivered by: Padova, J.

MEMORANDUM

Essex Insurance Company ("Essex"), as the assignee of Skirmish, U.S.A., Inc. ("Skirmish"), brings this action against Liberty Mutual Insurance Company ("Liberty Mutual"), seeking to recover one-half of the amount that Essex paid for the defense and indemnification of Skirmish in connection with alawsuit brought by Jorge Martinez captioned Martinez v. Skirmish U.S.A., Inc., Civ. A. No. 07-5003 (E.D. Pa.) (the "Martinez litigation"). Liberty Mutual has moved to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(6). For the following reasons, the Motion is granted.

I. BACKGROUND

The Complaint alleges the following facts. Essex issued commercial general liability policy no. 3CQ2257 (the "Essex Policy"), to Skirmish, a paintball recreation facility located in Jim Thorpe, Pennsylvania, for the period from March 4, 2005 through March 4, 2006. (Compl. ¶¶ 6-7, Ex. A.) Liberty Mutual issued commercial general liability policy no. GLTO-472960-007 (the "Liberty Policy"), to Vision 2 International Inc. ("Vision 2"), a manufacturer of paintball goggles, for the period from July 17, 2007 though July 17, 2008, with a Retroactive Date of September 1, 2003. (Id. ¶¶ 8, 11, Ex. B.) The Liberty Policy covers "all damages the 'Insured' becomes legally liable to pay by reason of liability imposed by law or assumed by the 'Insured'... for: A. 'bodily injury' or 'property damage' covered by this Policy that takes place during the 'policy period' and is caused by an occurrence...." (Liberty Policy Section I.) The Liberty Policy further provides that its coverage is primary insurance and, if its insured has other primary insurance applicable to a loss that provides for contribution by equal shares, Liberty Mutual will also contribute in equal shares. (Id. Section VIII. 12.) The Essex Policy also provides for contribution by equal shares if its insured's other insurance permits contribution by equal shares. (Essex Policy Section IV. 4. c.)

Jorge Martinez visited Skirmish to engage in paintball games on March 19, 2006. (Compl. ¶ 10.) He rented paintball equipment from Skirmish, including VForce Armor Rental Field Black Goggles ("VForce Goggles") manufactured by Vision 2 and sold to Skirmish by ProCaps, LP and by ProCaps Direct USA (collectively "ProCaps"). (Id. ¶ 11.) He was struck in his right eye by a paintball during a paintball game after his VForce Goggles slipped or moved position, exposing his right eye. (Id. ¶ 13.) He suffered permanent blindness in his right eye as a result. (Id. ¶ 14.)

Martinez filed suit against Skirmish on November 28, 2007. (Id. ¶ 15.) Skirmish subsequently filed Third Party Complaints against Tippmann Sports LLC ("Tippman") and ProCaps, alleging negligence in the design and manufacture of paintball guns, paintballs, and goggles. (Id. ¶ 17.) On January 9, 2009, Martinez filed direct claims against ProCaps, alleging the same facts as alleged in Skirmish's Third Party Complaints. (Id. ¶ 18.) On June 15, 2009, we denied Skirmish's Motion for Summary Judgment on Martinez's claims against Skirmish, insofar as it sought judgment in its favor on Martinez's claims against Skirmish for gross negligence, strict liability, and breach of warranty relating to the VForce Goggles. (Id. ¶ 19.) In doing so, we concluded that "the defects in design of the [VForce Goggles] outweigh its social utility and, accordingly, that the [VForce Goggles] Skirmish rented to Martinez on March 19, 2006 were unreasonably dangerous." (Id. ¶ 20.) On May 21, 2009, we granted Tippman's Motion for Summary Judgment, dismissing all claims against Tippman. (Id. ¶ 21.) On June 1, 2009, we granted ProCaps' Motion for Summary Judgment, dismissing all claims against ProCaps. (Id. ¶ 22.)

On August 19, 2009, Essex tendered defense and indemnification of the Martinez litigation to Liberty Mutual pursuant to the Liberty Policy, on the ground that Skirmish was a vendor, as that word is defined in the Liberty Policy, of the defective VForce Goggles that Martinez claimed caused his injuries. (Id. ¶ 24.) On August 27, 2009, Essex notified Liberty Mutual of a September 1, 2009 settlement conference in the Martinez litigation, and invited Liberty Mutual to attend and participate in the evaluation of Martinez's claim. (Id. ¶ 25.) On August 31, 2009, Liberty International Underwriters, on behalf of Liberty Mutual, acknowledged receipt of Essex's tender of defense and indemnification; however, it did not accept the tender and it declined to participate in claim evaluation or the settlement conference. (Id. ¶ 26.) The Martinez litigation was settled on September 1, 2009 through payment by Essex, on behalf of Skirmish, of $850,000 in exchange for delivery by Martinez of a Release and Settlement Agreement (the "Martinez settlement"). (Id. ¶ 27.) The Release did not release any claims against Vision 2. (Id. ¶ 28.) On October 23, 2009, Skirmish assigned to Essex its rights to recover from Liberty Mutual, pursuant to the Liberty Policy, any payments Essex made in the defense and settlement of the Martinez litigation and any fees and costs associated therewith. (Id. ¶ 29, Ex. C.)

The Complaint asserts one claim of breach of contract against Liberty Mutual. In support of this claim, the Complaint alleges that: (1) Skirmish is an Insured under the terms and conditions of the Liberty Policy; (2) the VForce Goggles Skirmish rented to Martinez on May 19, 2006 were an "Insured product" under the terms and conditions of the Liberty Policy; (3) the accident and resulting injury to Martinez on May 19, 2006 constitute an "Occurrence" as defined by the Liberty Policy; and (4) under the terms of the Liberty Policy, Liberty Mutual must contribute, by equal shares, to the amount paid for the defense and indemnification of Skirmish in connection with Martinez's injury. (Id. ¶¶ 36-43.) Essex paid $244,171.81 to defend of Skirmish in the Martinez litigation. (Id. ¶ 50.) Essex paid $850,000.00 on behalf of Skirmish to settle the Martinez litigation. (Id. ¶ 51.) Essex seeks a total of $547,085.90 from Liberty Mutual. (Id. ¶ 54.)

Liberty Mutual has moved to dismiss the Complaint on three grounds. First, it argues that that the Martinez occurrence and claim are not covered by the Liberty Policy because they were not timely reported to Liberty Mutual as required by the Liberty Policy. Next, it argues that it has no obligation to make any payment with respect to the Martinez litigation under the Liberty Policy because the Martinez litigation was settled without its consent. Finally, it argues that Skirmish does not qualify as an Insured under the Liberty Policy.

II. LEGAL STANDARD

When considering a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), we look primarily at the facts alleged in the complaint and its attachments. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). We take the factual allegations of the complaint as true and draw all reasonable inferences in favor of the plaintiff. Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (citing Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)). Legal conclusions, however, receive no deference, and the court is "not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286 (1986) (cited with approval in Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

A plaintiff's pleading obligation is to set forth "a short and plain statement of the claim," Fed. R. Civ. P. 8(a)(2), which gives the defendant "'fair notice of what the... claim is and the grounds upon which it rests.'" Twombly, 550 U.S. at 555 (alteration in original) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). The "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (citing Twombly, 550 U.S. at 556). In the end, we will dismiss a complaint if the factual allegations in the complaint are not sufficient "to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555 (citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, at 235-36 (3d ed. 2004)).

III. DISCUSSION

The Complaint asserts one claim for breach of contract against Liberty Mutual for failure to pay an equal share of the Martinez settlement and Skirmish's defense costs in the Martinez litigation. "Pennsylvania law requires that a plaintiff seeking to proceed with a breach of contract action must establish '(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract[,] and (3) resultant damages.'" Ware v. Rodale Press, Inc., 322 F.3d 218, 225 (3d Cir. 2003) (alteration in original) (quoting CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 (Pa. Super. Ct. 1999)). In order to determine whether Liberty Mutual has a contractual duty to pay an equal share of the Martinez settlement and Skirmish's defense costs, we ...


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