Team Contractors, L.L.C. v. Waypoint Nola, L.L.C.

         SECTION: “E” (2)

          ORDER AND REASONS

          SUSIE MORGAN, UNITED STATES DISTRICT JUDGE

         Before the Court is a motion by Catlin Insurance Company, Inc. (“Catlin”), seeking a ruling that Third-Party Plaintiff Waypoint NOLA, L.L.C. (“Waypoint”) may not assert a claim against it under La. R.S. 22:1973.^[1] The motion is opposed.^[2] The Court ordered supplemental briefing on this issue after responsive pleadings were filed.^[3] Accordingly, the Court will construe this motion as a motion for judgment on the pleadings based on a failure to state a claim on which relief can be granted pursuant to Rule 12(c) of the Federal Rules of Civil Procedure.^[4] For the reasons below, Catlin's motion is GRANTED.

         BACKGROUND

         This case involves the development and construction of the Hyatt House hotel in downtown New Orleans, Louisiana (“the Project”). The allegations in the initial pleadings are as follows. Plaintiff Team Contractors, L.L.C., (“Team”) entered into a contract with Waypoint, the owner of the Project, for the construction and/or renovation of seven floors of the property located at 1250 Poydras Street, New Orleans, Louisiana.^[5] Waypoint also entered into an agreement by which HC Architects, L.L.C. (“HCA”) would serve as the Project's architect, and additionally provide “all normal Architectural, Civil, Structural, and [mechanical, electrical, and plumbing] (“MEP”) engineering services.”^[6] HCA, in turn, subcontracted the MEP design work to KLG, L.L.C., now known as Salas O'Brien South, L.L.C. (“KLG”).^[7] Catlin is the professional liability insurer for both HCA and KLG.^[8]

         After HCA delivered a complete set of specifications, including KLG's MEP plans, it was discovered that several components of KLG's MEP system design did not comply with New Orleans code requirements.^[9] Because construction had begun on the MEP systems before the parties recognized the code deficiencies, Team had to remove the faulty systems and rebuild the MEP systems from revised plans before continuing its work.^[10]

         Team filed suit in this Court on February 5, 2016, alleging breach of contract by Waypoint and negligence on the part of Waypoint, HCA, and KLG.^[11] Waypoint filed its answer and a third-party complaint against HCA, KLG, and Catlin on May 20, 2016.^[12] As relevant to this motion, Waypoint asserts a cause of action against Catlin under La. R.S. 22:1973.^[13] Waypoint alleges that it made satisfactory proof of loss to support its claims against Catlin under the HLA and KLG policies, but Catlin, in bad faith, failed to make timely payment on Waypoint's claims.^[14] Waypoint alleges that Catlin is responsible for the damages caused by HCA and KLG, and seeks payment of its claims and additional penalties provided by Louisiana law.^[15]

         LEGAL STANDARD

         The standard for deciding a Rule 12(c) motion for judgment on the pleadings is the same as the standard for deciding a motion under Rule 12(b)(6).^[16] Under Rule 12(b)(6), and thus under Rule 12(c), “[t]o avoid dismissal, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.”^[17]“To be plausible, the complaint's ‘[f]actual allegations must be enough to raise a right to relief above the speculative level.'”^[18] “In deciding whether the complaint states a valid claim for relief, we accept all well-pleaded facts as true and construe the complaint in the light most favorable to the plaintiff.”^[19] “We do not accept as true conclusory allegations, unwarranted factual inferences, or legal conclusions.”^[20]

         ANALYSIS

         Waypoint alleges a cause of action for penalties against Catlin pursuant to La. R.S. 22:1973(B)(5).^[21] La. R.S 22:1973(A) defines an insurer's duty of good faith and fair dealing, and La. R.S. 22:1973(B) establishes when an insurer may be held liable for a bad faith breach of its duty:

(B) Any one of the following acts, if knowingly committed or performed by an insurer, constitutes a breach of the insurer's duties . . .:

(1) Misrepresenting pertinent facts or insurance policy provisions relating to any coverages at issue.

(2) Failing to pay a settlement within thirty days after an agreement is reduced to writing.

(3) Denying coverage or attempting to settle a claim on the basis of an application which the insurer knows was altered without notice to, or knowledge or consent of, the insured.

(4) Misleading a claimant as to the applicable prescriptive period.

(5) Failing to pay the amount of any claim due any person insured by the contract within sixty days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious, or without probable cause.

(6) Failing to pay claims pursuant to R.S. 22:1893 when such failure is arbitrary, capricious, or without probable cause.^[22]

         Waypoint asserts a claim under subsection (B)(5). Specifically, Waypoint alleges it provided Catlin with satisfactory proof of its loss, Catlin did not pay the amount of the claim within sixty days, and Catlin's failure to do so was “arbitrary, capricious, or without probable cause.”^[23]

         Catlin argues Waypoint is not entitled to recover penalties under La. R.S. 22:1973(B)(5) because the provision applies only to “any person insured by the contract.”^[24] Catlin argues, even if third parties may assert claims under subsections (B)(1)-(4), the plain language of subsection (B)(5) limits recovery to “person[s] insured by the contract.” It is undisputed that Waypoint is a third-party claimant, and is not Catlin's insured.^[25] Accordingly, Catlin asserts that Waypoint may not recover under subsection 1973(B)(5). Catlin points to a substantial body of federal and state case law supporting its position.^[26]

         In opposition, Waypoint argues that “person insured by the contract” should be interpreted to include third-party claimants. Waypoint offers several arguments in support. First, Waypoint argues that the text and legislative history of La. R.S. 22:1973 suggest that subsection (B)(5) allows for claims by third parties.^[27] Waypoint relies on the Gauthier v. Travelers Ins. Co., ...