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X Wausau Business Insurance Company v. Horizon Administrative Services LLC

July 21, 2011

X WAUSAU BUSINESS INSURANCE COMPANY, PLAINTIFF,
v.
HORIZON ADMINISTRATIVE SERVICES LLC, BIRCHWOOD SNF LLC D/B/A BUCKINGHAM VALLEY REHAB AND NURSING CENTER, GNH LLC D/B/A ATLANTIC SHORES REHAB & HEALTH, GREEN VALLEY SNF LLC D/B/A PINNACLE REHAB & HEALTH, HORIZON INNOVATIVE LLC, IROP LLC D/B/A INDIAN RIVER REHAB & HEALTHCARE CENTER INC., IVY HILL SNF LLC, OPOP LLC D/B/A OCEAN PROMENADE NURSING CENTER INC., RICHBORO SNF LLC D/B/A RICHBORO CARE CENTER, ROCKVILLE SKILLED NURSING & REHABILITATION CENTER LLC, WLOP LLC D/B/A WEST LEDGE REHAB & NURSING CENTER, WMOP LLC D/B/A ACHIEVE REHAB & NURSING CENTER, WALNUT MOUNTAIN CARE CENTER, TAYLOR HEALTH &REHAB CENTER LLC D/B/A TAYLOR NURSING & REHAB CENTER, AND PRECISION HEALTH SERVICES LLC, DEFENDANTS.



The opinion of the court was delivered by: X Ramon E. Reyes, Jr., United States Magistrate Judge

OPINION & ORDER

Plaintiff Wausau Business Insurance Company ("Wausau") brought this action against Horizon Administrative Services LLC ("Horizon"), Birchwood SNF LLC ("Birchwood"), Buckingham SNF LLC d/b/a Buckingham Valley Rehab and Nursing Center ("Buckingham"), GNH LLC d/b/a Gowanda Rehab and Nursing Center ("GNH"), Green Valley Terrace SNF LLC d/b/a Atlantic Shores Rehab & Health ("Green Valley Terrace"), Green Valley SNF LLC d/b/a Pinnacle Rehab & Health ("Green Valley"), Horizon Innovative LLC ("Horizon Innovative"), IROP LLC d/b/a Indian River Rehab & Healthcare Center Inc. ("IROP"), Ivy Hill SNF LLC ("Ivy Hill"), OPOP LLC d/b/a Ocean Promenade Nursing Center Inc. ("OPOP"), Richboro SNF LLC d/b/a Richboro Care Center ("Richboro"), Rockville Skilled Nursing & Rehabilitation Center LLC ("Rockville"), WLOP LLC d/b/a West Ledge Rehab & Nursing Center ("WLOP"), WMOP LLC d/b/a Achieve Rehab & Nursing Center, Walnut Mountain Care Center ("WMOP"), Taylor Health & Rehab Center LLC d/b/a Taylor Nursing & Rehab Center ("Taylor"), and Precision Health Services LLC ("Precision") (collectively, "defendants"). On February 18, 2011, Wausau moved to dismiss defendants' counterclaim and to strike a similarly premised affirmative defense. (Dkt. 28.) The matter is now before me on consent of all parties. (Dkt. No. 39.)*fn1 For the reasons stated herein, plaintiff's motion is granted in its entirety.

BACKGROUND

Wausau issued two Workers Compensation and Employers Liability Insurance policies to Horizon-one with a policy period of February 11, 2008 to February 11, 2009 ("2008 Policy"), the other with a policy period of March 11, 2009 to March 11, 2010 ("2009 Policy"). (Compl.*fn2 ¶¶ 23, 38.) In both policies, Horizon is the first named insured,*fn3 and Birchwood, Buckingham, GNH, Green Valley Terrace, Green Valley, Horizon Innovative, IROP, Ivy Hill, OPOP, Richboro, Rockville, WLOP, WMOP, Taylor and Precision are named as additional insureds. (Compl. ¶¶ 25-26, 38, 40.) Nine named insureds are either New York corporations, and/or corporations with a New York place of business: Horizon, GNH, Horizon Innovative, IROP, OPOP, Rockville, WLOP, WMOP, and Precision. (Compl. ¶¶ 4, 7, 10, 11, 13, 15-17, 19.) Five named insureds are either Pennsylvania corporations, and/or corporations with a Pennsylvania place of business: Birchwood, Buckingham, Ivy Hill, Richboro, and Taylor. (Compl. ¶¶ 5, 6, 12, 14, 18.) Green Valley Terrace and Green Valley are Delaware corporations. (Compl. ¶¶ 8-9.) Both policies were issued from New York, to the first named insured Horizon in New York, and countersigned by Wausau in New York. (See Potashner Aff., Exhs. 3 & 4.)

Wausau alleges that defendants failed to pay outstanding premium and assessments due and owing for the 2008 Policy. (Compl. ¶¶ 34-35.) Wausau further alleges that the 2009 Policy was terminated due to defendants' failure to provide a letter of credit, and that defendants failed to pay the amount still due and owing pursuant to the terms of that Policy. (Compl. ¶¶ 44-47.) Wausau seeks payment of the amounts due under both policies, totaling $1,052,070, plus interest and costs and disbursements of the action.

By way of an affirmative defense and counterclaim, defendants contend that Wausau's claims are barred because Wausau did not adequately defend defendants' workers compensation claims, thereby increasing defendants' policy premiums. (Ans. ¶¶ 30-32.) Defendants seek monetary damages and reasonable attorneys' fees. (Ans. ¶¶ 30, 32.)

Before me is Wausau's motion to dismiss this counterclaim and strike the affirmative defense. (Dkt. No. 28.) Plaintiff argues that New York law does not recognize a claim for negligent handling of insurance claims, nor does it allow the same to be asserted as a defense to payment of premiums due and owing. (Memorandum of Law in Support of Motion to Dismiss Defendants' Counterclaim and to Strike Affirmative Defense ("Pl. Mem."), dated Feb. 18, 2011, 3.) Defendants concede that their counterclaim and affirmative defense are not cognizable under New York law, but argue nevertheless that because some of the named insureds are domiciled in Pennsylvania and Delaware, New York law does not apply to all defendants. (Memorandum of Law in Opposition to Plaintiffs' Motion to Dismiss Defendants' Counterclaim and to Strike Affirmative Defense ("Def. Mem."), dated Mar. 18, 2011, at 2-3.) Plaintiff replies that New York law applies to disposition of the entire action, regardless of the domicile of some of the named insureds. (Wausau's Reply Memorandum of Law in Further Support of Motion to Dismiss Defendants' Counterclaim and to Strike Affirmative Defense ("Pl. Reply Mem."), dated Apr. 1, 2011, at 2.)

DISCUSSION

I. Standards for Motion to Dismiss and Motion to Strike Defenses

Rule 12(b)(6) of the Federal Rules of Civil Procedure provides for dismissal of a claim if the pleading "fail[s] to state a claim upon which relief can be granted." In order to survive a motion to dismiss, the pleading must contain sufficient factual allegations that, accepted as true, "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). Thus, if a claim or counterclaim fails to state "a legally cognizable right of action," dismissal is appropriate. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

To strike an affirmative defense as insufficient pursuant to Rule 12(f) of the Federal Rules of Civil Procedure, the court must first find that there are no substantial questions of law or fact that might allow the defense to succeed, and second that the plaintiff would be prejudiced if the affirmative defense remained in the pleadings. Coach, Inc. v. Kmart Corp., 756 F. Supp. 2d 421, 425 (S.D.N.Y. 2010). As to the first part of the inquiry, the standards for dismissal pursuant to Rule 12(b)(6) generally apply. See id. Therefore, if an affirmative defense is not available as a matter of law, the first part of the inquiry is complete. See, e.g., Specialty Minerals, Inc. v. Pluess-Staufer AG, 395 F. Supp. 2d 109, 112-14 (S.D.N.Y. 2005) (striking "unclean hands" defense where it was unavailable to defendant as a matter of law). The court must then turn to the question of prejudice to plaintiff. Increased time and expense of litigation may constitute sufficient prejudice to strike an affirmative defense. Coach, Inc., 756 F. Supp. 2d at 425; FDIC v. Eckert Seamans Cherin & Mellott, 754 F. Supp. 22, 23 (E.D.N.Y. 1990) ("Where the defense is insufficient as a matter of law, the defense should be stricken to eliminate the delay and unnecessary expense from litigating the invalid claim.").

Here, defendants concede that their counterclaim and affirmative defense for negligent handling of workers' compensation claims are not legally cognizable under New York law. (See Def. Mem. at 4.) Likewise, plaintiff apparently concedes that under Pennsylvania and Delaware law, defendants' counterclaim and affirmative defense are cognizable. (See generally Pl. Reply Mem.) Therefore, the only question is which law applies.

If New York law applies, then even accepting as true the claim that Wausau negligently handled claims, defendants are entitled to no relief, and the counterclaim should be dismissed. Similarly, their affirmative defense would fail as a matter of law satisfying the first part of the Rule 12(f) inquiry. Undoubtedly, the burden and cost of undertaking discovery on the issue of Wausau's claims handling constitutes sufficient prejudice to warrant striking the affirmative defense here if it is not availing. If, however, ...


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