QST v. National Union Fire Ins. CV-98-572-M 05/28/02 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
QST Environmental, Inc. f/k/a Environmental Science _____ & Engineering, Inc., Plaintiff
v. Civil No. 98-572-M Opinion No. 2002 DNH 105 National Union Fire Insurance Company _____ of Pittsburgh, PA; and United National Insurance Company, Defendants
O R D E R
The plaintiff, QST Environmental, Inc. ("ESE"), brings
breach of contract, including breach of the duty of good faith
and fair dealing, claims against National Union Fire Insurance
Company ("National") and United National Insurance Company
("UNIC"). ESE's claims are based on its status as an "additional
insured" on policies issued by National and UNIC to OHM
Remediation Services ("OHMRS") and arise from the settlement of
an underlying tort suit. ESE and both defendants move for
summary judgment. Background
EnergyNorth Natural Gas, Inc., entered into a contract with
ESE related to hazardous waste remediation at its property in
Concord, New Hampshire. ESE in turn contracted with OHMRS to
perform related work at the site. ESE's contract with OHMRS
included an indemnification provision as well as a requirement
that ESE be named as an additional insured on OHMRS's relevant
insurance policies. OHMRS was insured under a commercial general
liability policy issued by National and an umbrella liability
policy issued by UNIC. ESE was in fact included as an additional
insured on both policies.
In May of 1994, Thomas Shoemaker, an employee of OHMRS, was
severely injured while working on the remediation project at the
EnergyNorth site. His parents brought suit on his behalf,
alleging claims against EnergyNorth, ESE, and OHMRS' parent
company (Shoemaker's employer, OHMRS was immune under the
worker's compensation b a r ) . Shoemaker claimed ESE was negligent
in supervising OHMRS, committed engineering malpractice, breached
a non-delegable duty, and was vicariously liable for the
negligence of OHMRS.
2 National agreed to defend ESE in the Shoemaker action,
subject to a reservation of rights. The parties engaged in
private mediation in August of 1998. ESE did not participate in
the settlement negotiations in its own right, but only through
the insurance carriers.
In September of 1998, National tendered its policy limit of
$1,000,000.00 to UNIC, and UNIC took over the defense of the
case. ESE declined to contribute its own funds to settle all of
Shoemaker's claims. Late in September, Shoemaker settled his
claims against defendants, except ESE, for $7,900,000.00. The
settling parties executed a release. The claims against ESE
based on theories of vicarious liability (Counts III and IV in
the Shoemaker complaint) were resolved and ESE was released from
liability as to those claims.
Shoemaker continued to pursue his distinct claims against
ESE for negligence (Count I) and engineering malpractice (Count
II). UNIC refused to provide ESE with a defense or coverage as
to those claims. ESE and Shoemaker later settled those remaining
claims. ESE, itself, paid Shoemaker $225,000 to settle the
3 engineering malpractice claim. ESE's commercial general
liability insurer, Illinois National Insurance Company, paid
Shoemaker $825,000 to settle the discrete negligence claim
against ESE.
ESE subsequently sued OHMRS, asserting claims for indemnity
and breach of the duty of good faith and fair dealing. In the
release executed as part of the settlement with Shoemaker,
however, ESE relinquished any claims for indemnification against
OHMRS. Accordingly, ESE amended its complaint, withdrawing the
indemnification claim against OHMRS. ESE also sued UNIC and
National, alleging breach of contract and breach of the duty of
good faith and fair dealing. The two suits were consolidated
into the present action. In the course of the litigation, ESE's
claim against OHMRS, OHMRS's counterclaim against ESE, and UNIC's
counterclaim against ESE were dismissed. Only ESE's claims
against UNIC and National remain.
Discussion
ESE's claims against UNIC and National allege breach of
contract and breach of the duty of good faith and fair dealing.
4 ESE says that because it was an additional insured on the UNIC
and National Insurance policies issued to OHMRS, UNIC and
National owed ESE a defense and indemnification with regard to
Shoemakers' distinct negligence claim against ESE.1 ESE also
claims that UNIC and National breached the duty of good faith and
fair dealing by favoring OHMRS, and prejudicing ESE's ability to
settle the claims against it that were not covered by UNIC and
National. ESE moves for summary judgment on liability only.
UNIC and National move for summary judgment in their favor on all
of ESE's claims.
UNIC and National raise a preliminary issue regarding ESE's
standing to bring these claims because ESE's own liability
insurer, Illinois National Insurance Company, actually paid the
settlement amount to resolve Shoemaker's negligence claim against
ESE. In addition, Illinois National paid ESE's defense costs, to
the extent those costs were not covered by National and UNIC. By
seeking summary judgment on liability only, ESE may be trying to
1 ESE concedes that neither the UNIC policy nor the National policy provided coverage for the engineering malpractice claim.
5 avoid the question of loss. But ESE's loss in this context is
not a question of damages, but one of standing.2
"Every action shall be prosecuted in the name of the real
party in interest." Fed. R. Civ. P. 17(a). "the general rule in
federal court is that if an insurer has paid the entire claim of
its insured, the insurer is the real party in interest under
Federal Rule of Civil Procedure 1 7 (a) and must sue in its own
name."3 Krueger v. Cartwright, 996 F.2d 928, 931-32 (7th Cir.
1993)(citing United States v. Aetna Casualty & Surety Co., 338
U.S. 366, 380-81 (1949)). When an insurer pays only part of the
loss and the insured pays part, both the insurer and the insured
must bring their claims in the litigation in their own names.
Aetna. 338 U.S. at 381-82.
2 The collateral source rule, relied on by ESE to avoid the standing issue, applies only to preserve an award of damages and does not affect a party's standing to litigate a claim. See Concord Hosp. v. N.H. Med. Malpractice Joint Underwriting Ass'n, 142 N.H. 59, 61 (1997); Cvr v. J . I . Case C o .. 139 N.H. 193, 196 (1994) .
3 Similarly, under New Hampshire law, subrogation rights may arise from contract provisions or from the equitable subrogation doctrine. See DeLellis v. Burke. 134 N.H. 607, 610 (1991); Dimick v. Lewis, 127 N.H. 141, 144 (1985).
6 In this case, it is undisputed that Illinois National
provided the defense to Shoemaker's independent negligence claim
against ESE (to the extent the defense was not paid for by UNIC
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QST v. National Union Fire Ins. CV-98-572-M 05/28/02 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
QST Environmental, Inc. f/k/a Environmental Science _____ & Engineering, Inc., Plaintiff
v. Civil No. 98-572-M Opinion No. 2002 DNH 105 National Union Fire Insurance Company _____ of Pittsburgh, PA; and United National Insurance Company, Defendants
O R D E R
The plaintiff, QST Environmental, Inc. ("ESE"), brings
breach of contract, including breach of the duty of good faith
and fair dealing, claims against National Union Fire Insurance
Company ("National") and United National Insurance Company
("UNIC"). ESE's claims are based on its status as an "additional
insured" on policies issued by National and UNIC to OHM
Remediation Services ("OHMRS") and arise from the settlement of
an underlying tort suit. ESE and both defendants move for
summary judgment. Background
EnergyNorth Natural Gas, Inc., entered into a contract with
ESE related to hazardous waste remediation at its property in
Concord, New Hampshire. ESE in turn contracted with OHMRS to
perform related work at the site. ESE's contract with OHMRS
included an indemnification provision as well as a requirement
that ESE be named as an additional insured on OHMRS's relevant
insurance policies. OHMRS was insured under a commercial general
liability policy issued by National and an umbrella liability
policy issued by UNIC. ESE was in fact included as an additional
insured on both policies.
In May of 1994, Thomas Shoemaker, an employee of OHMRS, was
severely injured while working on the remediation project at the
EnergyNorth site. His parents brought suit on his behalf,
alleging claims against EnergyNorth, ESE, and OHMRS' parent
company (Shoemaker's employer, OHMRS was immune under the
worker's compensation b a r ) . Shoemaker claimed ESE was negligent
in supervising OHMRS, committed engineering malpractice, breached
a non-delegable duty, and was vicariously liable for the
negligence of OHMRS.
2 National agreed to defend ESE in the Shoemaker action,
subject to a reservation of rights. The parties engaged in
private mediation in August of 1998. ESE did not participate in
the settlement negotiations in its own right, but only through
the insurance carriers.
In September of 1998, National tendered its policy limit of
$1,000,000.00 to UNIC, and UNIC took over the defense of the
case. ESE declined to contribute its own funds to settle all of
Shoemaker's claims. Late in September, Shoemaker settled his
claims against defendants, except ESE, for $7,900,000.00. The
settling parties executed a release. The claims against ESE
based on theories of vicarious liability (Counts III and IV in
the Shoemaker complaint) were resolved and ESE was released from
liability as to those claims.
Shoemaker continued to pursue his distinct claims against
ESE for negligence (Count I) and engineering malpractice (Count
II). UNIC refused to provide ESE with a defense or coverage as
to those claims. ESE and Shoemaker later settled those remaining
claims. ESE, itself, paid Shoemaker $225,000 to settle the
3 engineering malpractice claim. ESE's commercial general
liability insurer, Illinois National Insurance Company, paid
Shoemaker $825,000 to settle the discrete negligence claim
against ESE.
ESE subsequently sued OHMRS, asserting claims for indemnity
and breach of the duty of good faith and fair dealing. In the
release executed as part of the settlement with Shoemaker,
however, ESE relinquished any claims for indemnification against
OHMRS. Accordingly, ESE amended its complaint, withdrawing the
indemnification claim against OHMRS. ESE also sued UNIC and
National, alleging breach of contract and breach of the duty of
good faith and fair dealing. The two suits were consolidated
into the present action. In the course of the litigation, ESE's
claim against OHMRS, OHMRS's counterclaim against ESE, and UNIC's
counterclaim against ESE were dismissed. Only ESE's claims
against UNIC and National remain.
Discussion
ESE's claims against UNIC and National allege breach of
contract and breach of the duty of good faith and fair dealing.
4 ESE says that because it was an additional insured on the UNIC
and National Insurance policies issued to OHMRS, UNIC and
National owed ESE a defense and indemnification with regard to
Shoemakers' distinct negligence claim against ESE.1 ESE also
claims that UNIC and National breached the duty of good faith and
fair dealing by favoring OHMRS, and prejudicing ESE's ability to
settle the claims against it that were not covered by UNIC and
National. ESE moves for summary judgment on liability only.
UNIC and National move for summary judgment in their favor on all
of ESE's claims.
UNIC and National raise a preliminary issue regarding ESE's
standing to bring these claims because ESE's own liability
insurer, Illinois National Insurance Company, actually paid the
settlement amount to resolve Shoemaker's negligence claim against
ESE. In addition, Illinois National paid ESE's defense costs, to
the extent those costs were not covered by National and UNIC. By
seeking summary judgment on liability only, ESE may be trying to
1 ESE concedes that neither the UNIC policy nor the National policy provided coverage for the engineering malpractice claim.
5 avoid the question of loss. But ESE's loss in this context is
not a question of damages, but one of standing.2
"Every action shall be prosecuted in the name of the real
party in interest." Fed. R. Civ. P. 17(a). "the general rule in
federal court is that if an insurer has paid the entire claim of
its insured, the insurer is the real party in interest under
Federal Rule of Civil Procedure 1 7 (a) and must sue in its own
name."3 Krueger v. Cartwright, 996 F.2d 928, 931-32 (7th Cir.
1993)(citing United States v. Aetna Casualty & Surety Co., 338
U.S. 366, 380-81 (1949)). When an insurer pays only part of the
loss and the insured pays part, both the insurer and the insured
must bring their claims in the litigation in their own names.
Aetna. 338 U.S. at 381-82.
2 The collateral source rule, relied on by ESE to avoid the standing issue, applies only to preserve an award of damages and does not affect a party's standing to litigate a claim. See Concord Hosp. v. N.H. Med. Malpractice Joint Underwriting Ass'n, 142 N.H. 59, 61 (1997); Cvr v. J . I . Case C o .. 139 N.H. 193, 196 (1994) .
3 Similarly, under New Hampshire law, subrogation rights may arise from contract provisions or from the equitable subrogation doctrine. See DeLellis v. Burke. 134 N.H. 607, 610 (1991); Dimick v. Lewis, 127 N.H. 141, 144 (1985).
6 In this case, it is undisputed that Illinois National
provided the defense to Shoemaker's independent negligence claim
against ESE (to the extent the defense was not paid for by UNIC
and National) and it paid the amount owed in settlement. As a
result, ESE has sustained no loss from the alleged breach of
contract and breach of the duty of good faith and fair dealing,
related to the Shoemaker's independent negligence claim, can only
be asserted by Illinois National.
Illinois National is not a party to this suit. Rule 17(a)
directs that an action not "be dismissed on the ground that it is
not prosecuted in the name of the real party in interest until a
reasonable time has been allowed after objection for ratification
of commencement of the action by, or joinder or substitution of,
the real party in interest . . . ." In an affidavit submitted by
National, Gary A. Almeida, speaking on behalf of Illinois
National, states that he has not authorized ESE or its counsel
"to take any action to recover any of the sums paid by Illinois
National to settle the Shoemaker litigation" or to recover
defense costs incurred in that case.4 Almeida further states
4 Gary Almeida is a Complex Claims Director with AIG Claims Services, Inc. and handled the Shoemaker litigation against ESE
7 that Illinois National does not seek to recover either the sums
paid in settlement or the costs of litigation. C f . Allwaste
Envtl. Serv. v. Pastore, 911 F.Supp. 29, 31-32 (D.ME. 1996).
Therefore, since Illinois National is not and will not be a
party, the breach of contract and breach of the duty of fair
dealing claims are dismissed.
Although ESE would have standing to pursue its engineering
malpractice related claims, it does not argue that the National
and UNIC policies covered that claim. Therefore, ESE's claims of
breach, based on Shoemaker's engineering malpractice claim
against it, are deemed waived.
ESE argues that its claims against UNIC and National also
include "any increased liability to ESE for non-covered claims
cause by the Defendants' bad-faith conduct during the Shoemaker
settlement negotiations." Reply Mem. at 6. ESE's breach of
contract and breach of good faith claims against UNIC and
National, the only claims alleged by ESE against UNIC and
under the ESE policy issue by Illinois National.
8 National, must arise from an enforceable contract. ESE concedes
that Shoemaker's engineering malpractice claim was not covered by
the defendants' policies. Therefore, the defendants did not
breach any duty owed under the policies or breach any good faith
obligations, which necessarily must relate to their policy
obligations. See, e.g., Ahrendt v. Granite Bank, 144 N.H. 308,
312-13 (1999)(citing Centronics Corp. v. Genicom Corp., 132 N.H.
133, 143 (1989)).
ESE is without standing to pursue claims arising from the
defendants' failure to provide a defense or indemnify the amount
paid to Shoemaker's independent negligence claim against it. ESE
concedes that the defendants' policies did not provide coverage
for the engineering negligence claim. Therefore, ESE's claims
against defendants arising from Shoemaker's independent
negligence claim against ESE are dismissed for lack of standing.
UNIC and National are entitled to summary judgment as to all
other claims against them.
9 Conclusion
For the foregoing reasons, the plaintiff's motion for
summary judgment (document no. 58) is denied. The defendants'
motions for summary judgment (documents no. 57 and 59) are
granted as is more fully set forth in this order.
The clerk of court shall enter judgment accordingly and
close the case.
SO ORDERED.
Steven J. McAuliffe United States District Judge
May , 2 0 02
cc: James C. Wheat, Esq. Margaret H. Nelson, Esq. Gordon A. Rehnborg, Jr., Esq.