United States District Court, S.D. Indiana, Evansville Division
ENTRY ON AFICA'S MOTION TO DISMISS CMC'S
RICHARD L. YOUNG, JUDGE
effort to save on annual premium, Custom Mechanical
Construction, Inc. (“CMC”) purchased workers'
compensation insurance from Accident Fund Company of America
(“AFICA”) through CMC's longtime exclusive
insurance agent Schultheis Insurance Agency. Schultheis
allegedly conveyed to CMC that this new coverage would be
“apples to apples” as compared to its previous
coverage. However, when CMC submitted a claim to AFICA
arising out of a job site in Kentucky, coverage apparently
was more like apples to oranges because AFICA denied the
claim stating that the policy did not cover claims from
Kentucky. This apparent gaffe in coverage is the subject of
the dispute between the parties.
brought the present declaratory judgment action maintaining
that the policy does not cover claims from Kentucky. CMC
counterclaimed that AFICA wrongly and unreasonably denied
coverage and that Schultheis is liable for failing to procure
adequate coverage. Before the court is AFICA's Motion to
Dismiss, and for the reasons set forth below, the Court
GRANTS AFICA's Motion.
a mechanical contractor that was formed in 2005 under the
laws of the State of Indiana. (Filing No. 37, Amended
Counterclaim ¶¶ 4, 8). Its principal place of
business is in Evansville, Indiana. (Id. ¶ 4).
CMC is authorized to transact business in Kentucky, and since
2006, many of its projects have been located in Kentucky.
(Id. ¶¶ 9-10). Dating back to its
formation in 2005, CMC has utilized Schultheis as its
exclusive agent to procure all of its insurance.
(Id. ¶ 11). CMC relies on Schultheis to procure
and maintain the specific types of insurance coverage
necessary for the operation of its business. (Id.
¶ 32). Given the nature of construction services
provided by CMC, it is necessary to maintain workers'
compensation coverage in all of the states where it performs
services. (Id. ¶ 13).
first procured workers' compensation insurance for CMC
through Praetorian Insurance Company, and CMC maintained this
policy (the “Praetorian Policy”) from 2006 until
October 24, 2015. (Id. ¶ 12). To the best of
CMC's knowledge, the Praetorian Policy provided coverage
in Kentucky. (Id. ¶¶ 12, 16, 26). Prior to
the renewal of the Praetorian Policy, Lee Sublett, CMC's
primary agent at Schultheis, began soliciting new quotes from
other workers' compensation carriers. (Id.
¶¶ 14, 15, 20). One of these quotes was through
AFICA. (Id. ¶ 14). AFICA's quote was three
thousand dollars cheaper than what CMC was paying under the
Praetorian Policy. (Id.). Eventually, coverage was
bound through AFICA. (See Id. ¶¶ 14, 17).
issued a temporary workers' compensation policy for CMC
with an effective date of May 15, 2016 lasting through
October 24, 2016 (the “Temporary
Policy”). (Id. ¶ 20). CMC was led to
believe that the coverage provided as between the Praetorian
Policy and the Temporary Policy was “apples to
apples.” (Id. at ¶ 18). CMC never
requested that Schultheis cancel its workers'
compensation coverage in Kentucky. (Id. ¶ 16).
However, neither Schultheis nor AFICA requested that CMC
complete an application prior to the placement of coverage.
(Id. ¶ 18).
the Temporary Policy was issued, Sublett met with the owners
of CMC on a number of occasions about a permanent policy.
(Id. ¶ 27). In these meetings, the owners
specifically discussed projects in Kentucky. (Id.
¶ 21). They also provided Sublett with several
hypothetical scenarios in an effort to better understand the
bounds of their coverage. (Id. ¶ 28). Sublett
did not explain that coverage had changed or that the AFICA
policy would not cover CMC for workers' compensation
claims in Kentucky. (See Id. ¶ 17). Sublett
advised that CMC had adequate insurance coverage.
(Id. ¶ 30).
on October 12, 2016, before a permanent policy was issued,
Danny Cope was injured while working for CMC on a project in
Mayfield, Kentucky. (Id. ¶¶ 19, 33-38). He
was completing a task in a scissor lift when the lift was
unexpectedly struck by a piece of a trough. (Id.
¶ 37). The lift tipped over, and Cope fell with it.
(Id.). The fall resulted in Cope sustaining several
bruises, lacerations to the head, and fractures of the neck,
back, ankle, foot, pelvis and elbow. (Id. ¶
reported its claim to Schultheis on October 17, 2016.
(Id. ¶ 41). On November 4, 2016, Sublett
instructed CMC to fabricate its records regarding Kentucky
projects so that Cope's claim would apparently fall
within the Temporary Policy. (Id. ¶¶ 47,
48). Concerned, CMC spoke with Sublett's superior, Brett
Schultheis, who advised CMC not to alter its records and
stated that he believed AFICA would cover the claim.
(Id. at ¶¶ 49-50). AFICA formally denied
coverage on November 11, 2016. (Id. ¶ 52).
filed his workers' compensation claim with the Kentucky
Department of Workers' Claims on November 17, 2016, and
that action is currently still pending. (Id. ¶
55). AFICA filed the present action on December 29, 2016. CMC
filed its Amended Counterclaim on April 14, 2017. AFICA now
moves to dismiss all of CMC's claims.
advances five claims against AFICA in its Amended
Counterclaim: (1) negligence; (2) breach of contract; (3) bad
faith; (4) a violation of the Kentucky Unfair Claims
Settlement Practices Act, K.R.S. § 304.12-230 et
seq.; and (5) a violation of the Kentucky Consumer
Protection Act, K.R.S. § 367.110 et seq. AFICA
moves to dismiss each claim under Rule
authorizes the court to dismiss a complaint for
“failure to state a claim upon which relief can be
granted.” Fed.R.Civ.P. 12(b)(6). A complaint that does
not plead “enough facts to state a claim to relief that
is plausible on its face” will be dismissed. Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
“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.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at
556). Although a court must accept all factual allegations as
true and draw all inferences in favor of the nonmovant, it
need not accept legal conclusions. Lodholtz v. York Risk
Servs. Grp., Inc., 778 F.3d 635, 639 (7th Cir. 2015).
Choice of Law
asserts in its Amended Complaint that Kentucky law applies
because the project site (on which Cope was working when he
suffered his injuries) is located in Kentucky. AFICA responds
that Indiana law applies because the dispute between the
parties concerns the interpretation of a contract formed in
Indiana, not the underlying accident that resulted in
Cope's injuries. Curiously, CMC responds that it
“does not agree that Indiana law should apply, but
because AFICA has asserted only Indiana law as a basis for
its Motion to Dismiss, CMC has responded citing Indiana law.
The choice of law to be applied is a decision by this Court
for a later time.” (Filing No. 50 at 7 n. 2).
the court cannot pass on the choice of law question now.
Where the law of one state applies, claims based on the laws
of another state must be dismissed. See Sestito v.
Knop, 297 F.2d 33, 33-34 (7th Cir. 1961) (affirming
dismissal of claim brought under Michigan law where Wisconsin
law applied); see also Doe v. American Stores Co.,
74 F.Supp.2d 855, 857, 859 (E.D. Wis. 1999) (dismissing
claims based on Wisconsin statutes where Illinois law
applied). In other words, the choice of law determination
bears on whether CMC's claims are plausible under Rule
12(b)(6). Indeed, it would make little sense to find that CMC
has stated claims under Indiana law-the law which CMC cites
in its Response to AFICA's motion-if later the court
ultimately concludes that Kentucky law applies. If CMC wanted
the court to apply Kentucky law it needed to respond to AFICA
and brief the issue. CMC did not do that. Accordingly, the
court finds that CMC has waived the issue and will apply
Indiana law. Ennin v. CNH Industrial America, LLC,
No. 17-2270, 2017 WL 6602932, at *3 (7th Cir. Dec. 27, 2017).
notwithstanding, the court would still apply Indiana law to
CMC's counterclaims. The first step in a choice of law
analysis is to apply the forum state's choice of law
rules. See Rice v. Nova Biomedical Corp., 38 F.3d
909, 915 (7th Cir. 1994). Indiana's rules for determining
choice of law depend on whether the dispute is best
characterized as a contract action or a tort action.
Compare Kentucky Nat. Ins. Co. v. Empire Fire and Marine
Ins. Co., 919 N.E.2d 565, 575 (Ind.Ct.App. 2010)
(contract action), with Alli v. Eli Lilly and Co.,
854 N.E.2d 372, 376 (Ind.Ct.App. 2006) (tort action). The
current dispute is best characterized as a contract action
because the parties dispute whether a particular insurance
policy covers certain injuries; it does not concern the
injuries themselves. See Travelers Ins. Companies v.
Rogers, 579 N.E.2d 1328, 1330 (Ind.Ct.App. 1991);
American Family Mut. Ins. Co. v. Williams, 839
F.Supp. 579, 583 (S.D. Ind. 1993) (“Because this action
asks the court to determine the scope of an automobile
insurance policy's coverage, Indiana's choice of law
rules for contract actions apply.”).
contract dispute, Indiana law requires the court, after
consideration of all of the relevant facts, to apply the
“law of that state with which the facts are in most
intimate contact.” Empire Fire and Marine Ins.
Co., 919 N.E.2d at 575 (citation omitted). The Indiana
Supreme Court has recognized that the principal location of
the risk carries the most weight. See National Union Fire
Ins. Co. of Pittsburgh, PA v. Standard Fusee Corp., 940
N.E.2d 810, 814 (Ind. 2010). Here, the principal location of
the risk is Indiana. Although the Temporary Policy could
apply to any state under Item 3. C, Indiana is the only state
explicitly listed under Item 3. A. Furthermore, the insurance
policy was negotiated in Indiana. It is between an Indiana
company and a Michigan company. It was procured ...