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Stinker Stores, Inc. v. Nationwide Agribusiness Insurance Co.

May 17, 2010


The opinion of the court was delivered by: Honorable Larry M. Boyle United States Magistrate Judge


The Court has before it Plaintiffs' Motion For Leave to Amend to Add Causes of Action and to Seek Punitive Damages (Docket No. 43). The Court heard oral argument on April 20, 2010, and took the motion under advisement. After careful review of the record and considering each of the parties' arguments, the Court issues the following Memorandum Decision and Order.


A. Factual Background

This action is an insurance coverage dispute. Plaintiffs*fn1 were insured by Defendant Nationwide Agribusiness Insurance Co. ("Nationwide") under several general commercial liability policies with optional Employee Benefit Liability (EBL) endorsements. The Policies are referred to and described in Plaintiffs' Complaint, and hereafter, as the 2003 Policy, 2005 Policy and 2007 Policy. See Complaint, ¶¶ 22, 27 & 55.

Plaintiffs were sued by several former employees and made claims for a defense and indemnity for the lawsuits under the various allegedly applicable EBL endorsements. The first lawsuit filed was Lawrence v. Fearless Farris Serv. Stations, Inc., CV03-313-S-LMB ("Lawrence"). Lawrence asserted two causes of action - interference with ERISA rights, and a claim for benefits. Nationwide defended the lawsuit under a reservation of rights agreement. Nationwide denied Plaintiffs both a defense and coverage for the three subsequent lawsuits lawsuits.

The first of these subsequent lawsuits was Roberts v. Fearless Farris Service Stations, Inc., et al., CV-OC-03-11729 ("Roberts I"). Roberts filed the lawsuit on November 5, 2003, alleging wrongful termination and that "as a result of the wrongful termination," he was "entitled to be paid a promised Deferred Compensation Plain which the Company had in place with an approximate value of $300,000." Roberts I Complaint, (Docket No. 40-3, at p. 37). Nationwide denied Plaintiffs' tender of Roberts I on November 16, 2003. (Docket No. 41-1, page 35).

Prior to trial, the Roberts I parties agreed to try only the wrongful termination claim, and not the claim for benefits. The jury found in Plaintiffs' favor on the wrongful termination claim, and, accordingly, that Roberts was entitled to no damages. Affidavit of Counsel In Support of Plaintiffs' MPSJ, Exhibit E (Docket No. 40-3, at p. 41).

Roberts then filed a second lawsuit against Plaintiffs, Roberts v. Fearless Farris Service Stations, Inc., et al., CV-05-472-S-EJL (Roberts II), on November 18, 2005. In that case, Roberts alleged only one claim titled "Claim For Benefits" which he brought under ERISA.

Plaintiffs tendered their defense of Roberts II on January 20, 2006. (Jones Aff., Exh. E) (Doc. 40-1, page 39). Nationwide issued a denial of coverage letter on April 19, 2006, through its counsel. (Counsel Aff., Exh. G). Roberts prevailed against Plaintiffs and the District Court entered judgment in Roberts' favor on February 6, 2008. Plaintiffs appealed, and the matter settled while on appeal on April 23, 2009, with Plaintiffs paying $230,000 to Roberts. (Jones Aff., Exh. F) (Docket No. 40-1, p. 42).

The third lawsuit is Brasley v. Fearless Farris Service Stations, Inc., et al., CV 08-173-SBLW ("Brasley"). Brasley filed a Class Action Complaint on April 17, 2008, on behalf of all present or former employees of Stinker who are or were Plan participants, and the Plan itself. In his original complaint, Brasley alleged four claims against Plaintiffs under ERISA which include breach of fiduciary duties, a claim for benefits, failure to provide information and sought equitable relief. Stinker tendered the suit to Nationwide on May 6, 2008. Nationwide denied Plaintiffs a defense and coverage, again by letter through coverage counsel, on August 14, 2008.

Brasley filed an Amended Class Action Complaint on September 8, 2008, adding additional named plaintiffs. Stinker forwarded the Amended Complaint to Nationwide on September 10, 2008, but heard nothing further from Nationwide on defense or coverage for that action. Plaintiffs negotiated a settlement with one named Brasley plaintiff in the amount of $120,000. Plaintiffs did not seek class certification, and the four remaining plaintiffs' claims were recently tried to Chief Judge B. Lynn Winmill.

Chief Judge Winmill issued his Findings of Fact and Conclusions of Law on April 26, 2010. Brasley, (Docket No. 134). He found that one plaintiff (Elliott) had executed a valid release of the Plaintiffs from all claims under ERISA, and denied Elliott's request for relief. Id., ¶ 57. As for the remaining Brasley plaintiffs (Brasley & Newell), Chief Judge Winmill found Plaintiffs liable to them as Plan Participants and to the Plan itself for breaching Plaintiffs' fiduciary duties in failing to comply with ERISA. Id., ¶ 71. The Court denied the Brasley plaintiffs' requests for statutory administrative penalties, however. Id., ¶¶ 98 - 117. Chief Judge Winmill further stayed his decision on a remedy for the Plaintiffs' breach of fiduciary duties as the parties are attempting to craft their own by agreement. See id., ¶ 119.

It is undisputed that Nationwide has paid no defense costs, attorneys' fees or settlement amounts to Plaintiffs for any of these three lawsuits.

B. Procedural Background

Plaintiffs filed this action against Nationwide in state court on August 12, 2008. (Docket No. 1-2). In their Complaint, Plaintiffs allege claims for breach of contract, bad faith and declaratory judgment under both the 2003 Policy and 2005 Policy for the "Roberts Action," and for breach of contract, bad faith and declaratory judgment under the 2003 Policy and 2007 Policy for the Brasley Action, and for an award of attorneys' fees and costs.

Nationwide removed the action to this Court on September 4, 2008. (Docket No. 1). The parties filed their Scheduling Conference Form - Litigation Plan on October 21, 2008. The Court entered a Case Management Order on January 16, 2009, adopting the parties' Litigation Plan. (Docket No. 16). The parties agreed that all motions to amend pleadings, except for punitive damages, were to be filed by December 1, 2008. (Docket No. 12). The parties thereafter agreed to several extensions of certain deadlines set forth in the original Litigation Plan, which this Court approved. The deadline to file a motion to amend the pleadings, however, was not one of the extended deadlines and Plaintiffs have not sought leave for an extension of that date. The discovery cut-off was October 23, 2009. (Docket No. 27).

All parties filed dispositive motions in August 2009. Nationwide sought judgment in its favor on all claims against it. Plaintiffs sought partial judgment in their favor on the breach of contract and declaratory judgment claims ...

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