MatconUSA LP v. Houston Casualty Company

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 10 MATCONUSA LP, CASE NO. C19-1952JLR-TLF 11 Plaintiff, ORDER ADOPTING REPORT v. AND RECOMMENDATION HOUSTON CASUALTY COMPANY, et al., Defendants.

I. INTRODUCTION This matter comes before the court on the Report and Recommendation of United States Magistrate Judge Theresa L. Fricke (R&R (Dkt. # 59)) and the objections thereto filed by Defendant Marsh USA Inc. (“Marsh”) (Obj. (Dkt. # 65)). Magistrate Judge Fricke recommends to the court that it grant in part and deny in part Marsh’s motion to dismiss (MTD (Dkt. # 43)). (R&R at 1.) Plaintiff MatconUSA LP (“Matcon”) and Defendant Houston Casualty Company (“HCC”) responded to Marsh’s objections.

1 (Matcon Resp. (Dkt. # 66); HCC Resp. (Dkt. # 67).) The court has carefully reviewed the foregoing documents, the balance of the record, and the applicable law. Being fully advised,1 the court ADOPTS the Report and Recommendation and GRANTS in part and DENIES in part Marsh’s motion to dismiss.

5 II. BACKGROUND 6 Because the Report and Recommendation sets forth the detailed factual and procedural background of this case (see R&R at 1-5), the court focuses here on the background relevant to Marsh’s motion to dismiss.

9 This action arises out of a construction project at 1200 Stewart Street in Seattle, Washington (“the Project”). (SAC (Dkt. # 30) ¶ 7.) As part of the Project, Matcon enrolled as an insured in an Owner Controlled Insurance Program (“OCIP”) administered by Marsh. (Id. ¶ 12; see also Dkt. # 47-1 (“Project Insurance Manual”).2) An OCIP is a type of “wrap-up insurance program” that is purchased to insure large construction projects such as the Project. (SAC ¶ 7.) The OCIP includes a primary liability policy issued by HCC. (Id. ¶ 9.)

16 Matcon alleges that, according to the claim reporting provisions of the Project Insurance Manual issued by Marsh, enrolled contractors such as Matcon were to report claims for injury to the public or damage to property within the Project construction site

20 1 Marsh requested oral argument. (Obj. at 1.) The court, however, finds oral argument unnecessary to its disposition of Marsh’s objections. See Local Rules W.D. Wash. LCR 7(b)(4).

2 As discussed below, the court grants Matcon’s request to consider certain documents that its second amended complaint refers to and relies upon. See infra § III.B.

1 “to the Owner and General Contractor with a copy to Marsh.” (Id. ¶¶ 13-15; see Project Insurance Manual at 13.) In October 2018, the Project’s general contractor, Graham Construction & Management, Inc. (“Graham”) alleged that Marsh was liable for property and other damage at the Project. (SAC ¶ 17.) Matcon states that it immediately reported Graham’s damage claim “in the manner specified by the Project Insurance Manual . . . by also sending a copy of the [c]laim to Marsh.” (Id. ¶ 18.) Graham asserted additional claims against Matcon in November, which Matcon again reported “as specified in the Project Insurance Manual” by sending the claims to Marsh. (Id. ¶¶ 20-21.) Matcon received no response from either HCC or Marsh to its attempts to report those claims.

10 (See id. ¶¶ 19, 22.) Graham then terminated Matcon from the Project and withheld payment for work Matcon had already completed. (Id. ¶ 23.) Matcon subsequently made two additional requests for insurance benefits by providing copies of its claims to Marsh but again did not receive any response from HCC or Marsh. (See id. ¶¶ 24-28.) In relevant part, Matcon now alleges claims against Marsh for negligence (see id. ¶¶ 55-57) and for tortious interference with economic relations (see id. ¶¶ 58-63).

16 III. ANALYSIS 17 Magistrate Judge Fricke recommends that the court: (1) consider certain documents that the parties submitted in support of or in opposition to Marsh’s motion to dismiss (see R&R at 6-11); (2) deny Marsh’s motion to dismiss Matcon’s negligence claim (see id. at 11-17); and (3) grant Marsh’s motion to dismiss Matcon’s tortious interference with business relationships claim without prejudice (see id. at 17-18). Marsh objects to Magistrate Judge Fricke’s recommendations that the court consider six documents submitted by Matcon (Obj. at 6-8) and deny Marsh’s motion to dismiss Matcon’s negligence claim (id. at 9-14). No party objects to Magistrate Judge Fricke’s recommendation that the court dismiss Matcon’s tortious interference claim. (See R&R at 17-18; see generally Dkt.)

5 The court begins by reviewing Magistrate Judge Fricke’s recommendation to consider certain documents in deciding the motion to dismiss before turning to her recommendation to deny Marsh’s motion to dismiss Matcon’s negligence claim.

8 A. Standard of Review 9 A district court has jurisdiction to review a magistrate judge’s report and recommendation on dispositive matters. See Fed. R. Civ. P. 72(b). “The district judge must determine de novo any part of the magistrate judge’s disposition that has been properly objected to.” Id. “A judge of the court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1). The court reviews de novo those portions of the report and recommendation to which specific written objection is made. United States v. Reyna-Tapia, 328 F.3d 16 1114, 1121 (9th Cir. 2003) (en banc).

17 B. Requests to Consider Documents 18 Marsh objects to Magistrate Judge Fricke’s recommendation that the court consider six documents that Matcon offered to support its opposition to Marsh’s motion to dismiss.3 (Obj. at 6-8.) Although the scope of review on a motion to dismiss for failure to state a claim is generally limited to the complaint, a court may consider evidence on which the complaint “necessarily relies” if: (1) the complaint refers to the document; (2) the document is central to the plaintiff’s claim; and (3) no party questions the authenticity of the document. Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010) (quoting Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (internal quotation marks omitted)). The court’s consideration of the documents, however, is limited by the principle that it may not draw inferences or take notice of facts that might reasonably be disputed on the basis of those documents. United States v. Corinthian Colls., 655 F.3d 984, 999 (9th Cir. 2011).

11 Marsh does not dispute the authenticity of the documents. (See generally Obj.) It asserts, however, that Matcon’s second amended complaint does not refer to the documents and that the documents are not central to Matcon’s claims. (Id. at 6-8.) As a result, according to Marsh, Magistrate Judge Fricke erred when she considered the documents in evaluating Marsh’s motion to dismiss. The court disagrees and adopts Magistrate Judge Fricke’s recommendation regarding the documents.

17 First, Marsh objects to Magistrate Judge Fricke’s consideration of four emails from Matcon Project Manager Sylvia Bourgeois to Marsh’s OCIP Program Manager, Natalie Cordova, which attach copies of the insurance claims that Matcon submitted Marsh agrees, however, with Magistrate Judge Fricke’s recommendation that the court consider the Project Insurance Manual because Matcon’s complaint “relies on it extensively.” (See Obj. at 7 (citing SAC ¶¶ 13-16, 18, 21, 55).)

1 through Marsh’s OCIP Claim Portal. (Obj. at 7-8 (citing Dkt. ## 47-2, 47-3, 47-4, 47-5).)

2 Matcon’s complaint, however, explicitly refers to the four emails—and quotes two of them. (See SAC ¶¶ 18, 21, 24, 27.) These emails are central to Matcon’s claim because, absent an allegation that it put Marsh on notice of its claim, it would have no ground to allege that Marsh breached a duty when it failed to apprise HCC of the claims that Matcon had sent to it. (See id. ¶¶ 55-57; Matcon Resp. at 3.) Therefore, the court adopts that portion of Magistrate Judge Fricke’s Report and Recommendation recommending that the court consider the four emails from Ms. Bourgeois to Ms. Cordova.

9 Second, Marsh objects to Judge Fricke’s consideration of two documents relating to the OCIP at issue in this case: a Certificate of Liability Insurance for operations at the Project site, which identifies Marsh as the “Producer” and Matcon as the “Insured” (Dkt. # 48-2 (“Certificate”)); and an Engagement Letter from Marsh to the Project owner, Westbank Holdings US Ltd. (“Westbank”), which lists the services that Marsh would provide as insurance broker for the Project and the terms and conditions for those services (Dkt. # 48-7 (“Engagement Letter”)). (Obj. at 8.) First the court agrees that the Certificate of Liability Insurance is properly before the court because Matcon’s claims depend on its enrollment in the OCIP administered by Marsh. (See R&R at 10.)

18 Second, the court agrees that the Engagement Letter is properly before the court. As Judge Fricke observed, the Engagement Letter lays out the terms and conditions of the OCIP that forms the basis of Matcon’s complaint. (See id.) Although the complaint does not expressly refer to the Engagement Letter, it repeatedly refers to Marsh’s duties under the Project Insurance Manual. (See generally SAC). The Project Insurance Manual in turn states that it provides “only a general overview of the OCIP for convenience of reference” and that the provisions in the manual are “subject in all respects to the terms and conditions of the actual insurance policies and related contracts between the parties.”

4 (See Project Insurance Manual at 3.) Thus, the court agrees with Magistrate Judge Fricke that the complaint necessarily relies on the Engagement Letter because the Project Insurance Manual—which all parties agree is properly before the court—incorporates the terms and conditions contained in the Engagement Letter. (See R&R at 10.)

8 Accordingly, the court ADOPTS that portion of the Report and Recommendation regarding the documents to consider in evaluating Marsh’s motion to dismiss.

10 C. Matcon’s Negligence Claim 11 Marsh objects to Magistrate Judge Fricke’s recommendation that the court deny Marsh’s motion to dismiss Matcon’s negligence claim because Matcon “fail[ed] to plead that Marsh breached any duty found in the [E]ngagement [L]etter.” (Obj. at 9.) It asserts that Magistrate Judge Fricke erred in her analysis of the six-factor test set forth in Trask v. Butler, 872 P.2d 1080, 1083 (Wash. 1994), in determining that Marsh owed Matcon a duty as a non-client third party. (Obj. at 10-14.) The court considers these arguments below.

18 1. Standard of Review 19 Federal Rule of Civil Procedure 12(b)(6) provides for dismissal for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When considering a motion to dismiss under Rule 12(b)(6), the court construes the complaint in the light most favorable to the nonmoving party. Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). The court must accept all well-pleaded facts as true and draw all reasonable inferences in favor of the plaintiff. Wyler Summit P’ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). The court, however, is not required “to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). “To survive a motion to dismiss, 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 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Telesaurus VPC, LLC v. 10 Power, 623 F.3d 998, 1003 (9th Cir. 2010). “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.” Iqbal, 556 U.S. at 677-78. Dismissal under Rule 12(b)(6) can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

16 2. Analysis 17 To state a claim for negligence under Washington law, a plaintiff must allege (1) the existence of a duty; (2) breach of that duty; (3) resulting injury; and (4) that the breach was a proximate cause of that injury. Ranger Ins. Co. v. Pierce Cnty., 192 P.3d 20 886, 889 (Wash. 2008). “A duty of care is ‘an obligation, to which the law will give recognition and effect, to conform to a particular standard of conduct toward another.’”

1 Centurion Props. III, LLC v. Chi. Title Ins. Co., 375 P.3d 651, 654 (Wash. 2016) (quoting Affil. FM Ins. Co. v. LTK Consulting Servs., Inc., 243 P.3d 521, 525 (Wash. 2010)).

3 Matcon asserts that Marsh “had duties to Matcon under the OCIP Insurance Manual and under applicable law” and that it breached these duties “in many ways, including but not limited to failing to apprise or notify [HCC] or any other potentially responsible OCIP insurance companies of Matcon’s numerous requests for OCIP insurance benefits.” (SAC ¶¶ 55-56.) In its motion to dismiss, Marsh argued that Matcon’s negligence claim must be dismissed because Matcon failed to plausibly allege that Marsh owed it any duty. (MTD at 4-5.) Marsh argued that the terms of the Project Insurance Manual contradict Matcon’s allegation that Marsh owed it a duty to notify HCC about Matcon’s dispute with Graham. (Id. at 5.) It contended that the terms of the Project Insurance Manual showed definitively that Marsh’s only responsibility with respect to claim reporting under the OCIP was merely “administrative” – that is, its duty was “simply to keep track of a Claim by receiving a ‘copy’ of lawsuits against OCIP insureds.” (Id. at 5-7 (citing Project Insurance Manual at 13).)4 16 It is true that the Claim Reporting page of the Project Insurance Manual refers, in two bold-face sentences, to “lawsuits/summons.” (See Project Insurance Manual at 13.)

4 Marsh also asserted that Matcon’s negligence claim must fail under the independent duty doctrine, which limits a party’s ability to assert a tort claim under certain circumstances where a contract exists between the parties. (MTD at 9-10); see Eastwood v. Horse Harbor Found., 241 P.3d 1256, 1261-62 (Wash. 2010). As Magistrate Judge Fricke correctly recognized, however, Matcon does not allege that it had a contractual relationship with Marsh. (See R&R at 12; see generally SAC.) No party objects to Magistrate Judge Fricke’s conclusion that the independent duty doctrine does not bar Matcon’s negligence claim. (See generally Dkt.)

1 In the discussions that follow the bold-face sentences, however, the instructions refer to “Claims.” (See id.) Because “Claim” is undefined in the Project Insurance Manual, however, it is unclear whether a “Claim” refers only to a lawsuit or summons, or more broadly to any potential claim that could be brought under the OCIP. (See generally id.) The court concludes that the interpretation of the Claim Reporting language and whether it bars Matcon’s claim that Marsh assumed a duty pursuant to that language to report Matcon’s claims to HCC depend on questions of fact that are inappropriate to resolve at this stage of the proceedings.

9 In its reply, Marsh contended that it could not owe any duty to Matcon since Matcon was not Marsh’s customer and was not in a contractual relationship with Marsh.

11 (See MTD Reply (Dkt. # 49) at 11-12.) In resolving this dispute, Magistrate Judge Fricke applied the six factors set out in Trask and determined that Matcon had sufficiently pleaded that Marsh owed it a tort duty as a non-client third party. (See R&R at 12-17.)

14 The Trask factors ask the court to evaluate: (1) the extent to which the transaction was intended to benefit the plaintiff; (2) the foreseeability of harm to the plaintiff; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant’s conduct and the injury; (5) the policy of preventing future harm; and (5) the extent to which the profession would be unduly burdened by a finding of liability. (R&R at 12-13 (citing Centurion Props., 375 P.3d at 657-58).) The threshold question in this analysis is whether the non-client is an intended beneficiary of the transaction in question. See Centurion Props., 375 P.3d at 658. If the first Trask factor is not met, then the court need make no further inquiry into the defendant’s duty. Id. Magistrate Judge Fricke concluded that Matcon’s second amended complaint satisfied all six of the Trask factors. (See R&R at 12-17.)

3 The court agrees with and adopts Magistrate Judge Fricke’s analysis of the Trask factors. First, the court agrees that the OCIP and Marsh’s appointment as administrator of the OCIP were intended to benefit Matcon. (See R&R at 14-15.) As the Washington Court of Appeals has recognized, 7 It is not an uncommon practice in construction contracts for the owner to agree to purchase insurance to protect the interests of some or all of the 8 contractors, subcontractors, and materialmen. An agreement to insure is an agreement to provide both parties with the benefit of insurance regardless of 9 the cause of the loss (excepting wanton and willful acts).

10 W. Wash. Corp. of Seventh-Day Adventists v. Ferrellgas, Inc., 7 P.3d 861, 870 (Wash. Ct. 11 App. 2000) (quoting Ind. Erectors, Inc. v. Trs. of Ind. Univ., 686 N.E. 2d 878, 880-81 (Ind. App. 1997)). Here, Matcon alleges that it was one of many subcontractors enrolled in the OCIP, which was purchased by the owner of the Project (Westbank) and administered by Marsh. (SAC ¶¶ 7-8, 12; see also Certificate.) The court finds that the first Trask factor has been met.

16 Second, the court agrees that harm to Matcon was foreseeable under the second Trask factor. (See R&R at 15.) Matcon alleges that Marsh had a duty to report claims sent to it that arose from its role as the OCIP Administration/Insurance Broker, the Project Insurance Manual, and applicable law. (SAC ¶¶ 32, 55.) As Magistrate Judge Fricke recognized, it is foreseeable that a failure to report Matcon’s insurance claims would result in harm to Matcon. (See R&R at 15.)

1 Third, the court agrees that Matcon alleged to a sufficient degree of certainty that it suffered harm. (See R&R at 15-16.) Matcon alleges that because Marsh failed to report its claims to HCC, it suffered “real and measurable harm and damage” including the need to pay for its own defense, the deprivation of early opportunities to resolve Graham’s damage claims, and substantial and additional overhead, administrative, and legal expenses that would not otherwise have been incurred had Marsh reported the claim. (See SAC ¶ 31.) For the same reasons, the court agrees that Matcon has sufficiently alleged facts supporting the fourth Trask factor, which requires proof of a close connection between Marsh’s conduct and the injuries it suffered. (See id.) 10 The court also agrees with Magistrate Judge Fricke’s analysis of the fifth and sixth Trask factors: the policy of preventing future harm and the extent to which the profession would be unduly burdened by a finding of liability. (See R&R at 16.) As Magistrate Judge Fricke recognized, the OCIP and the contracts entered into pursuant to the OCIP 14 were part of the web of insurance coverage that was intended by the owner to manage financial risk, keep the project moving forward with effective 15 management of disputes and delays, and protect the owner and all participants in the project from being financially devastated by events during 16 construction.

17 (Id.) In this context, it would not unduly burden administrators of OCIPs to hold them accountable to language that, as Matcon alleges, requires them to forward claims by the OCIP’s insureds to the contracted insurers.

20 In sum, on de novo review, the court agrees with Magistrate Judge Fricke’s recommendation to deny Marsh’s motion to dismiss Matcon’s negligence claim and ADOPTS the Report and Recommendation.

1 IV. CONCLUSION 2 For the foregoing reasons, the court ADOPTS Magistrate Judge Fricke’s Report and Recommendation (Dkt. # 59). The court GRANTS in part and DENIES in part Marsh’s motion to dismiss (Dkt. # 43). Matcon’s tortious interference with economic relations claim is DISMISSED without prejudice and with leave to amend. Matcon may file an amended complaint that remedies the deficiencies outlined in the Report and Recommendation within 14 days of the filing date of this order.

8 Dated this 22nd day of March, 2021.

A 11 JAMES L. ROBART United States District Judge