Court Opinion

ID: 4181296
Source: CourtListenerOpinion
Date Created: 2017-06-27 17:01:28.891199+00
Date Added: 2024-06-11T07:47:16.593724
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                          File Name: 17a0375n.06

                                          No. 16-3657

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

DAVID C. MCCARTY;                   )                                              FILED
CYNTHIA K. MCCARTY,                 )                                        Jun 27, 2017
                                    )
                                                                         DEBORAH S. HUNT, Clerk
     Plaintiffs-Appellants,         )
                                    )
MIGUEL A. PEDRAZA,                  )
                                    )
     Plaintiff-Appellee,            )                       ON APPEAL FROM THE
                                    )                       UNITED STATES DISTRICT
v.                                  )                       COURT FOR THE SOUTHERN
                                    )                       DISTRICT OF OHIO
NATIONAL UNION FIRE INSURANCE       )
COMPANY OF PITTSBURGH, PA;          )
ADMINISTRATORS FOR THE PROFESSIONS )
OF DELAWARE, INC.,                  )                       OPINION
                                    )
     Defendants-Appellees,          )
                                    )
and                                 )
                                    )
AMERICAN INTERNATIONAL GROUP, INC., )
                                    )
     Defendant.                     )
                                    )

BEFORE: NORRIS, MOORE, and STRANCH, Circuit Judges.

       ALAN E. NORRIS, Circuit Judge. Plaintiffs David and Cynthia McCarty successfully

sued their former attorney, Miguel Pedraza, for malpractice. In an attempt to collect on Pedraza’s

malpractice insurance policy, the plaintiffs brought a claim against the insurance carrier,

National Union Fire Insurance Company of Pittsburgh, PA, and the administrator for the policy,

Administrators for the Professions of Delaware, Inc. The district court granted judgment on the

pleadings in favor of National and Administrators and, for the reasons that follow, we affirm.
                                                      McCarty v. Nat’l Union Fire Ins. Co., et al.
                                                                                    No. 16-3657

                                                I.

       In 2007, David and Cynthia McCarty were sued for breach of contract in the Common

Pleas Court for Clark County, Ohio, and they hired attorney Miguel Pedraza to defend them.

Pedraza neglected to file an answer to the complaint, and their counter-claim, resulting in a 2010

default judgment for more than $150,000 being entered against the McCartys. In January 2011,

the McCartys filed a malpractice action against Pedraza, eventually obtaining a judgment against

him in January 2015 in the amount of $275,825.29.

       From February 21, 2010, through February 21, 2011, Pedraza maintained a malpractice

insurance policy through National and Administrators designed to cover claims made and

reported during the policy year, though it allowed for reporting up to sixty days following the

end of the period. On December 8, 2011, the McCartys formally notified Administrators in

writing about the potential claim. In June 2015, after obtaining judgment against Pedraza, the

McCartys initiated an action in state court against National, Administrators, and Pedraza in an

effort to collect on Pedraza’s malpractice policy.1 National defended, in part, by asserting that

the claim did not fall within the scope of the policy’s coverage because the claim was not timely

reported as required in the policy. The McCartys do not dispute that their written notice was

given beyond the prescribed reporting period, but they nevertheless maintain National and

Administrators had actual and constructive notice of the claim, because the state-court action

against Pedraza was filed during the policy period, and the court docket was available to the

public. The McCartys also claim on appeal that National and Administrators must provide

coverage because they were not prejudiced by the late reporting.

       1
         American International Group, Inc. was named as a defendant below solely because it is
the parent company to National Union Fire Insurance Company of Pittsburgh, PA. The district
court granted AIG’s motion to dismiss and the plaintiffs do not appeal that dismissal.
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                                                       McCarty v. Nat’l Union Fire Ins. Co., et al.
                                                                                     No. 16-3657

       In July 2015, National and Administrators filed a notice to remove the case to federal

court pursuant to 28 U.S.C. § 1441 (removal) and § 1332 (diversity jurisdiction). The McCartys

objected and filed a motion to remand the case to state court, arguing that the parties were not

diverse because the McCartys, and on the other side Pedraza, each are citizens of Ohio. National

and Administrators filed a motion to realign defendant Pedraza as a plaintiff. The district court

denied the McCartys’ motion to remand and granted the motion to realign Pedraza as a plaintiff,

which preserved diversity and therefore the district court retained jurisdiction.

       Eventually, the district court granted judgment on the pleadings in favor of National and

Administrators, reasoning that the publicly available docket does not satisfy the policy’s

reporting requirements, and the written notice was sent too late. On appeal, the McCartys

challenge the district court’s denial of their motion to remand and its subject matter jurisdiction,

and its grant of judgment on the pleadings.

                                                 II.

       This court reviews de novo a district court’s decision regarding the existence of subject

matter jurisdiction. Rote v. Zel Custom Mfg. LLC, 816 F.3d 383, 387 (6th Cir. 2016). This

includes when the district court has retained jurisdiction by denying a plaintiff’s motion to

remand. Berera v. Mesa Med. Grp., PLLC, 779 F.3d 352, 357 (6th Cir. 2015).

       This court also reviews de novo a district court’s grant of judgment on the pleadings

under Federal Rule of Civil Procedure 12(c). Wilmington Trust Co. v. AEP Generating Co.,

854 F.3d 332, 336 (6th Cir. 2017) (citing Florida Power Corp. v. FirstEnergy Corp., 810 F.3d
996, 999–1000 (6th Cir. 2015)). “We take as true all well-pleaded material allegations in the

opposing party’s pleadings, and affirm the district court’s grant of the motion only if the moving

party is entitled to judgment as a matter of law.” Id. “However, ‘a legal conclusion couched as a

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                                                       McCarty v. Nat’l Union Fire Ins. Co., et al.
                                                                                     No. 16-3657

factual allegation’ need not be accepted as true.” Gavitt v. Born, 835 F.3d 623, 640 (6th Cir.

2016) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

A. Subject Matter Jurisdiction

       The McCartys assert that the district court erred when it denied their motion to remand

the case to state court and granted the motion by National and Administrators to realign Pedraza

as a plaintiff. The McCartys maintain that Pedraza is properly a defendant in this case. If they are

correct, there would be Ohio citizens on both sides of the litigation, and without diversity the

district court would not have subject matter jurisdiction over this state-law claim. See 28 U.S.C.

§ 1332(a).

       “Diversity jurisdiction cannot be conferred upon the federal courts by the parties’ own

determination of who are plaintiffs and who are defendants . . . .” City of Indianapolis v. Chase

Nat. Bank of City of N.Y., 314 U.S. 63, 69 (1941). “In considering whether there is complete

diversity, a federal court must look beyond the nominal designation of the parties in the

pleadings and should realign the parties according to their real interests in the dispute.” Safeco

Ins. Co. of Am. v. City of White House, Tenn., 36 F.3d 540, 545 (6th Cir. 1994) (citing Dawson v.

Columbia Ave. Sav. Fund, 197 U.S. 178, 180 (1905)). “Parties must ‘be aligned in accordance

with the primary dispute in the controversy, even where a different, legitimate dispute between

the parties supports the original alignment.’” Cleveland Hous. Renewal Project v. Deutsche Bank

Trust Co., 621 F.3d 554, 559 (6th Cir. 2010) (quoting United States Fidelity and Guar. Co. v.

Thomas Solvent Co., 955 F.2d 1085, 1089 (6th Cir. 1992)).

       A legitimate dispute between the McCartys and Pedraza certainly did exist, but that

dispute ended when a final judgment was entered in favor of the McCartys in the amount of

$275,825.29. The primary dispute in this case is whether National and Administrators are

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                                                      McCarty v. Nat’l Union Fire Ins. Co., et al.
                                                                                    No. 16-3657

required under the malpractice policy to cover the claim for damages awarded to the McCartys in

their malpractice suit against Pedraza. The McCartys argue that Pedraza is a proper defendant

because he had a duty to maintain malpractice coverage. This argument fails. First, common

sense dictates that in this dispute Pedraza’s interests are aligned with, or at least not opposing,

the McCartys’ interests. If the McCartys are successful in their action against National and

Administrators, Pedraza’s personal liability would be reduced. Second, nothing in the complaint

mentioned this duty to maintain coverage (perhaps because Pedraza did have coverage at the

relevant time) and in fact nowhere in the complaint do the McCartys seek any damages from

Pedraza. Finally, the statute that authorizes a judgment creditor to file a supplemental claim

against an insurance company to satisfy a judgment, Ohio Rev. Code Ann. § 3929.06, provides

for a subrogation action whereby the McCartys stand in the shoes of Pedraza, against National

and Administrators. See, e.g., Elkins v. Am. Int’l Special Lines Ins. Co., 611 F. Supp. 2d 752, 758

(S.D. Ohio 2009) (noting that the statute “creates a subrogation action, wherein the injured party

stands in the shoes of the insured against his or her insurer”). It would be an odd construction if

the statute authorized the McCartys to stand in the shoes of Pedraza to sue Pedraza.

       The McCartys also claim for the first time on appeal that the removal procedure was

defective because Pedraza may not have received proper notice of the removal. Setting aside that

this is pure speculation, such procedural objections must have been raised within thirty days of

removal. 28 U.S.C. § 1447(c). The time to object the removal procedures has passed.

       The district court did not err when it realigned the parties and denied the motion to

remand the case to state court.

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                                                        McCarty v. Nat’l Union Fire Ins. Co., et al.
                                                                                      No. 16-3657

B. Judgment on the Pleadings

        The district court granted judgment on the pleadings in favor of National and

Administrators because the claim was not reported in accordance with policy requirements.

Reviewing the district court judgment requires us to interpret the insurance policy. The policy is

governed by Ohio law, where “an insurance policy is a contract, and the parties’ rights under the

policy are purely contractual in nature.” Park-Ohio Indus., Inc. v. Home Indem. Co., 975 F.2d
1215, 1218 (6th Cir. 1992) (citing Nationwide Mut. Ins. Co. v. Marsh, 472 N.E.2d 1061, 1062

(Ohio 1984)). “[C]ourts shall give insurance contract terms their plain and ordinary meaning

unless another meaning is clearly apparent from the contents of the policy.” Retail Ventures, Inc.

v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 691 F.3d 821, 826 (6th Cir. 2012) (citing

Alexander v. Buckeye Pipe Line Co., 374 N.E.2d 146, 148 (Ohio 1978)). Where terms are

unambiguous, courts are not free to expand the contractual rights or obligations beyond “that

originally contemplated by the parties.” Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co.,

769 N.E.2d 835, 841 (Ohio 2002) (quotation omitted).

        The terms of Pedraza’s malpractice insurance policy are unambiguous. It provides

coverage only for claims made against Pedraza during the policy period of February 21, 2010,

and February 21, 2011, and promptly reported in writing to the insurer, but in any case no later

than sixty days after the end of the policy period. In this case that final reporting date is April 22,

2011.

        The McCartys state in their Complaint that National and Administrators had “actual and

constructive notice” of their malpractice suit against Pedraza because the docket was public and

National and Administrators had access to the docket. As the district court noted, there is no

provision of the insurance policy that obliges National or Administrators to monitor public

                                                  6
                                                        McCarty v. Nat’l Union Fire Ins. Co., et al.
                                                                                      No. 16-3657

dockets, or any suggestion that a public docket somehow supplants the reporting requirement in

the policy. Neither the district court nor this court has the authority to rewrite the policy to insert

such a provision.

       Alternatively, the McCartys state that they personally sent notice of the malpractice claim

to National on December 8, 2011. In its answer, National states that they received notice of the

claim on August 24, 2011. Both of those dates confirm that the written report of the claim was

well past the cutoff date of April 22, 2011. Nevertheless, the McCartys argue that their claim

must be covered because National and Administrators were not prejudiced by the late report. But

that argument fails.

       The argument appears to conflate a claims-made policy, like Pedraza’s, with an

occurrence-based policy. A claims-made policy covers losses that arise during the policy period,

regardless of when the events underlying the claim might have occurred. See Toledo-Lucas Cty.

Port Auth. v. Axa Marine & Aviation Ins. (UK), Ltd., 368 F.3d 524, 527 (6th Cir. 2004) (citation

omitted). On the other hand, an occurrence-based policy covers losses resulting from events that

occur during the coverage period, even though it might be long after the policy period before the

events are discovered and the claim is filed. Id.

       Both types of policies usually include reporting requirements, but unlike an occurrence

policy the coverage itself is triggered under a claims-made policy only when the claim is made to

the insured and reported to the insurer. Under an occurrence policy, coverage is triggered

automatically when the loss event happens and instead payment may be conditioned in the policy

on timely notice of the claim. In that case, if an insurance company wants to deny payment under

an occurrence policy due to late notice, it usually must show that it was prejudiced in some way

by the delayed reporting. See, e.g., Clark v. Chubb Grp. of Ins. Cos., 337 F.3d 687, 692 (6th Cir.

                                                    7
                                                      McCarty v. Nat’l Union Fire Ins. Co., et al.
                                                                                    No. 16-3657

2003); Ferrando v. Auto-Owners Mut. Ins. Co., 781 N.E.2d 927, 945 (Ohio 2002). The

McCartys’ reliance on these cases to require an insurer to show prejudice in a claims-made

policy is misplaced.

       Because coverage in a claims-made policy is generally restricted to only claims made and

reported during the policy period, an insurer need not demonstrate prejudice to deny a claim that

is made outside of the policy period. See United States v. A.C. Strip, 868 F.2d 181, 187 (6th Cir.

1989) (“Claims made policies, unlike occurrence policies, are designed to limit liability to a

fixed period of time. To allow coverage beyond that period would be to grant the insured more

coverage than he bargained for and paid for, and to require the insurer to provide coverage for

risks not assumed.”).

       Our decision in the A.C. Strip case is on all fours with the case at hand. It is unfortunate

that the McCartys’ former attorney failed them twice—first through his malpractice while

representing them and then by failing to properly report their malpractice claim to his insurance

provider. Nevertheless, Ohio law and the insurance policy at issue here are clear. The

malpractice claim was reported too late for it to be covered under Pedraza’s insurance policy.

                                               III.

       The judgment of the district court is affirmed.

                                                8