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Vertex Refining, NV, LLC v. National Union Fire Insurance Co. of Pittsburgh, PA

United States District Court, N.D. Illinois, Eastern Division

March 14, 2017



          REBECCA R. PALLMEYER United States District Judge

         In December 2013, an explosion and fire caused substantial damage to facilities operated by Omega Holdings Company, LLC, Omega Refining, LLC, and Bango Refining, LLC (collectively, “Omega”). Some months later, Plaintiff Vertex Refining, NV, LLC (“Vertex”), made a loan to Omega; as security, Vertex required that it be added as a named payee on a property insurance policy issued to Omega by Defendant Assurance Agency, Ltd. (“Assurance”) on behalf of Defendant National Union Fire Insurance Company of Pittsburgh, PA (“National Union”). Assurance did issue an insurance certificate listing Vertex as an additional insured, entitled to payment, but National Union instead paid the insurance proceeds directly to Omega. Omega has now defaulted on the loan to Vertex, and Vertex seeks damages from Assurance and National Union in the amount it would have received, had National Union made the claim payment to Vertex. Vertex's complaint alleges breach of contract, negligence, and negligent misrepresentation as against National Union (Counts I and IV) and as against Assurance (Counts II, III, and V). National Union has moved to dismiss the tort claims asserted against it in Count IV. For the reasons explained here, the motion is denied.


         The facts of this case are taken from Vertex's amended complaint, which the court assumes to be true for this motion. W. Bend Mut. Ins. Co. v. Schumacher, 844 F.3d 670, 675 (7th Cir. 2016). The court's jurisdiction is secure: Vertex is a citizen of Texas. (Amended Complaint [21] (“Am. Compl.”) ¶ 2.) Its sole member, another LLC, has as its sole member a Nevada corporation with a principal place of business in Texas. (Id. at ¶ 2.) National Union is a Pennsylvania corporation with its principal place of business in New York, while Assurance is incorporated and has its principal place of business in Illinois. (Id. at ¶¶ 3-4.) Vertex seeks damages of at least $4, 980, 000. (Id. at ¶¶ 43, 73.)

         This case arises out of a loan Vertex made to Omega-secured, Vertex understood, by insurance proceeds payable to Omega by its insurer, National Union. Omega had purchased that policy, effective April 30, 2013, through Assurance. (Am. Compl. ¶¶ 9-10.) Vertex alleges that National Union authorized Assurance to sell National Union products and to make certain changes to policyholders' coverage, such as the addition of “additional interests like Lenders Loss Payees and additional insureds, and to communicate with the insured policyholder and third parties regarding those additional interests.” (Id. at ¶¶ 11-12.) Vertex asserts that National Union also dictated the manner in which Assurance could conduct these activities, and that Assurance's activities “affected the legal relationship between National Union and Omega and between National Union and the holders of the additional interests.” (Id. at ¶¶ 11, 14-15.) Assurance was authorized to issue insurance certificates on behalf of National Union (id. at ¶¶ 13, 16), and under Omega's policy, any party to whom an insurance certificate was issued was automatically added to the policy as a covered insured. (Id. at ¶¶ 16, 27; see Ex. A to Am. Compl. [21-1] at 38.)

         On or around December 9, 2013, Omega made a policy claim for an explosion and fire at its facility. (Am. Compl. ¶ 17.) In April 2014, Omega assigned to Vertex its rights to collect the claim payments from National Union as security for its obligations to Vertex under a secured promissory note. (Id. at ¶ 18.) To that end, Vertex required that it be added to Omega's policy as a Lender's Loss Payee.[1] (Id. at ¶ 19.) Omega did request that Assurance add Vertex to Omega's policy (id. at ¶¶ 20-21), and on or around April 30, 2014, Assurance issued an insurance certificate naming Vertex as a Lender's Loss Payee and representing that Vertex was named on Omega's policy. (Id. at ¶¶ 22, 24.) Vertex alleges that it relied on this certificate when it extended the loan to Omega, and would not have done so without being added to Omega's policy. (Id. at ¶¶ 25-26.) National Union endorsed the policy with Vertex as a Lender's Loss Payee. (Id. at ¶ 28.)

         As Lender's Loss Payee, Vertex asserts, Vertex was entitled to payment on Omega's insurance claim. (Id. at ¶¶ 29-30, 32.) But National Union instead paid the proceeds to Omega, not Vertex, either (1) because Assurance and/or National Union did not properly endorse the policy, and/or (2) because National Union did not comply with the policy terms. (Id. at ¶¶ 31, 33.) Omega defaulted on the note, and Vertex contends it is owed $4, 980, 000 of the claim proceeds. (Id. at ¶¶ 34-37.)

         Vertex sued Assurance and National Union on March 22, 2016. On May 17, 2016, Vertex amended its complaint, alleging claims against National Union and Assurance.[2] National Union has moved to dismiss Count IV, in which Vertex charges it with negligence and negligent misrepresentation, under Federal Rules of Civil Procedure 10(b) and 12(b)(6). The court first addresses Rule 12(b)(6) and then Rule 10(b).


         I. Rule 12(b)(6)

         “To survive a motion to dismiss, a complaint must contain sufficient factual allegations to state a claim for relief that is legally sound and plausible on its face.” Avila v. CitiMortgage, Inc., 801 F.3d 777, 781 (7th Cir. 2015). The facts pleaded in the complaint must allow the court to reasonably infer that the defendant is liable for the alleged wrongdoing. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While a plaintiff need not make detailed factual allegations, the plaintiff must do more than plead legal conclusions, elements of a cause of action, or label such conclusions or elements as “factual allegations.” W. Bend Mut. Ins. Co., 844 F.3d at 675. National Union argues that Vertex has not met these minimal tests for either of its tort claims because the allegations do not establish that Assurance acted as National Union's agent. In the alternative, National Union argues that the economic loss doctrine defeats Vertex's claims.

         A. Principal-Agent Relationship

         Vertex seeks to hold National Union liable for tortious acts of Assurance, which Vertex contends was National Union's agent. A principal-agent relationship exists when the alleged principal has the right to control the alleged agent, and the alleged agent can affect the legal relationships of the alleged principal. Chemtool, Inc. v. Lubrication Techs., Inc., 148 F.3d 742, 745 (7th Cir. 1998) (citing Illinois cases); see also Opp v. Wheaton Van Lines, Inc., 231 F.3d 1060, 1064 (7th Cir. 2000) (noting the accord of Illinois and federal law with the Restatement (Second) of Agency). An agent can have actual or apparent authority to act on behalf of the principal. Opp, 231 F.3d at 1064 (quoting C.A.M. Affiliates, Inc. v. First American Title Ins. Co., 306 Ill.App.3d 1015, 1021, 715 N.E.2d 778, 783 (1st Dist. 1999)). An agent has actual authority when the principal explicitly or implicitly authorizes the agent to perform a particular act. Opp, 231 F.3d at 1064; see Restatement (Second) of Agency § 7 (1958). “Apparent authority arises when a principal creates, by its words or conduct, the reasonable impression in a third party that the agent has the authority to perform a certain act on its behalf.” Weil, Freiburg & Thomas, P.C. v. Sara Lee Corp., 218 Ill.App.3d 383, 390, 577 N.E.2d 1344, 1350 (1st Dist. 1991).

         National Union contends Vertex's allegations are insufficient to establish agency. National Union cites Whitley v. Taylor Bean & Whitacker Mortgage Corp., 607 F.Supp.2d 885, 895-96 (N.D. Ill. 2009), where the court found an agency relationship on the strength of allegations not made in this case: a contract authorizing the agent to negotiate loans; the agent's use of the principal's policies, software, and training materials; and payments from the principal to the agent. In a second case, Frazier v. U.S. Bank National Association, No. 11 C 8775, 2013 WL 1337263, at *4 (N.D. Ill. Mar. 29, 2013), plaintiff alleged that defendants acted as agents for a bank, noting that they ...

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