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First Commonwealth Bank v. St. Paul Mercury Insurance Co.

United States District Court, W.D. Pennsylvania

October 6, 2014



MAUREEN P. KELLY, Magistrate Judge.

Plaintiffs First Commonwealth Bank and its parent First Commonwealth Financial Corporation (collectively, "Plaintiffs"), bring this contract action against Defendant St. Paul Mercury Insurance Company ("Defendant"), alleging that Defendant breached the terms of the liability insurance policy it issued to Plaintiffs by refusing to provide coverage.

Presently before the Court is Defendant's Motion Pursuant to Federal Rule of Civil Procedure 12(b)(6) to Dismiss Plaintiff's Complaint ("the Motion"). ECF No. 11. For the reasons that follow, the Motion will be denied.


According to the Complaint, on or about August 31, 2012, one of Plaintiffs' clients was "the victim of malware (i.e. malicious software) that allowed an unknown third party to access the [client's computer] systems." ECF No. 1-2, ¶ 10. The unknown third party was then able to obtain the client's Senior Vice President's on-line banking user name and password for the client's bank accounts with Plaintiffs. Id . Plaintiffs allege that, with access to that information, the unknown third party initiated three unauthorized wire transfers. The first occurred on August 31, 2012, whereby the amount of $2, 158, 600 was transferred from the client's account to an account in Krasnodar, Russia (the "Russian Wire"). Id. at ¶ 11. The second unauthorized transfer occurred on September 4, 2012, whereby the amount of $76, 520 was wired to a bank in Upper Darby, Pennsylvania (the "Philadelphia Wire"). The third unauthorized transfer also occurred on September 4, 2012, whereby $1, 350, 000 was wired to a bank in Belarus (the "Belarusian Wire"). Id. at ¶¶ 12-14. Plaintiffs allege that they were unaware that the wire transfers were unauthorized or fraudulent when they occurred. Id. at ¶ 15. On the afternoon of September 4, 2012, however, the intermediary bank for the Russian Wire notified Plaintiffs that the Russian Wire appeared to be fraudulent. Id. at ¶ 16. Plaintiffs were subsequently able to recover the $76, 520 that constituted the Philadelphia Wire, but not the amounts from the Russian or Belarusian wires. Id. at ¶ 19, 30.

Thereafter, between September 6, 2012 and September 8, 2012, Plaintiffs' client allegedly made several demands to Plaintiffs to immediately refund/credit the substantial funds that had been withdrawn/debited from the client's account due to the Russian and Belarusian Wires. Id. at ¶ 20. Consequently, on September 8, 2012, Plaintiffs refunded the amount of $3, 508, 600 to the client's account using Plaintiffs' own funds. Id. at ¶¶ 17-20, 23. Plaintiffs subsequently notified Defendant of the loss on October 3, 2013, and sought to recover the funds under a liability policy ("the Policy") Defendant had issued to Plaintiffs. Id. at ¶¶ 24-26. Defendant, however, has refused to provide coverage stating that, by refunding the monies to their client without Defendant's prior consent, Plaintiffs relieved Defendant of its obligation to provide coverage under the terms of the Policy. Id. at ¶ 28.

Plaintiffs filed the instant Complaint in the Court of Common Pleas of Indiana County, Pennsylvania, on December 4, 2013, bringing a single count against Defendant for breach of contract. ECF No. 1. On January 3, 2014, Defendant removed the case to this Court based on diversity. Id . On April 25, 2014, Defendant filed a Motion Pursuant to Federal Rule of Civil Procedure 12(b)(6) to Dismiss Plaintiffs' Complaint. ECF No. 11. Plaintiffs filed a Memorandum of Law in Opposition to Defendant's Motion to Dismiss Plaintiff's Complaint, ECF No. 15, on May 28, 2014, and on June 17, 2014, Defendant filed a Reply Brief in Support of Motion to Dismiss. ECF No. 17. Having requested, and been granted, leave of Court to file a sur-reply, Plaintiffs filed a Sur-Reply in Opposition to Motion to Dismiss on June 25, 2014. ECF No. 20. Accordingly, the Motion is ripe for review.


In assessing the sufficiency of the complaint pursuant to a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court must accept as true all material allegations in the complaint and all reasonable factual inferences must be viewed in the light most favorable to the plaintiff. Odd v. Malone , 538 F.3d 202, 205 (3d Cir. 2008). The Court, however, need not accept bald assertions or inferences drawn by the plaintiff if they are unsupported by the facts set forth in the complaint. See California Publ. Employees' Ret. Sys. v. The Chubb Corp. , 394 F.3d 126, 143 (3d Cir. 2004), citing Morse v. Lower Merion Sch. Dist. , 132 F.3d 902, 906 (3d Cir. 1997). Nor must the Court accept legal conclusions set forth as factual allegations. Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555 (2007). Rather, "[f]actual allegations must be enough to raise a right to relief above the speculative level." Id., citing Papasan v. Allain , 478 U.S. 265, 286 (1986). Indeed, the United States Supreme Court has held that a complaint is properly dismissed under Fed.R.Civ.P. 12(b)(6) where it does not allege "enough facts to state a claim to relief that is plausible on its face, " id. at 570, or where the factual content does not allow the court "to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009). See Phillips v. Cnty. of Allegheny , 515 F.3d 224, 231 (3d Cir. 2008) (finding that, under Twombly, "labels, conclusions, and a formulaic recitation of the elements of a cause of action" do not suffice but, rather, the complaint "must allege facts suggestive of [the proscribed] conduct" and that are sufficient "to raise a reasonable expectation that discovery will reveal evidence of the necessary element[s] of his claim").


It is undisputed that the Policy that Defendant issued to Plaintiffs contains a Defense and Settlement provision which, in pertinent part, states that:

[t]he Insureds agree not to settle or offer to settle any Claim, incur any Defense Costs or otherwise assume any contractual obligation, admit any liability, voluntarily make any payment or confess or otherwise agree to any Damages or judgments with respect to any Claim covered by this Policy without the Insurer's written consent, which shall not be unreasonably withheld. The Insurer shall not be liable for any settlement, Defense Costs, assumed obligation, admitted liability, voluntary payment, or confessed or agreed Damages or judgment to which it has not consented.

ECF No. 1-2, p. 50. Defendant argues that because Plaintiffs voluntarily reimbursed their client for the unauthorized transfers without Defendant's consent, Plaintiffs are in breach of the Defense and Settlement provision of the Policy and thus Defendant cannot be held liable to Plaintiffs for the monies they paid to their client.

In response, Plaintiffs argue that because they have not alleged in the Complaint that they voluntarily credited the amount of the wires in question to their client and have alleged that they had no valid defense to their client's demands and that they were obligated by law to refund the monies, that that the Court may not consider Defendant's argument because it requires the Court to consider facts that have not ...

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