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American Select Insurance Co. v. Natural Blend Vegetable Dehydration, LLC

United States District Court, E.D. North Carolina, Eastern Division

March 22, 2019

AMERICAN SELECT INSURANCE COMPANY, Plaintiff,
v.
NATURAL BLEND VEGETABLE DEHYDRATION, LLC and THE HANOVER AMERICAN INSURANCE COMPANY, Defendants. NATURAL BLEND VEGETABLE DEHYDRATION, LLC, Crossclaim Plaintiff,
v.
THE HANOVER AMERICAN INSURANCE COMPANY, Crossclaim Defendant. and NATURAL BLEND VEGETABLE DEHYDRATION, LLC, Third-Party Plaintiff,
v.
INDUSTRIAL SILOSOURCE, Inc., MOLE-MASTER SERVICES CORPORATION, MANRY-RAWLS, LLC, and SIA GROUP, INC., Third-Party Defendants.

          ORDER

          W. Earl Britt Senior U.S. District Judge

         This matter is before the court on plaintiff and counterclaim defendant American Select Insurance Company's (“American Select”) and defendant and cross-claim defendant Hanover American Insurance Company's (“Hanover”) motions to dismiss, in part, defendant and counterclaim plaintiff Natural Blend Vegetable Dehydration, LLC's (“Natural Blend”) counterclaims and cross-claims. (DE ## 30, 32.) Natural Blend filed a response to both motions to dismiss. (DE ## 59, 60.) Hanover then filed a reply. (DE # 61.)

         Hanover also filed a motion to strike or, in the alternative, sever Natural Blend's third-party complaint against Industrial SiloSource, Inc. (“SiloSource”), Mole-Master Services Corporation (“Mole-Master”), Manry-Rawls, LLC (“Manry-Rawls”), and SIA Group, Inc. (“SIA”). (DE # 56.) Mole-Master filed a memorandum in support of that motion. (DE # 64.) Natural Blend filed a response in opposition to the motion. (DE # 62.) Hanover then filed a reply. (DE # 65.) These motions are ripe for disposition.

         I. BACKGROUND

         Natural Blend owns a facility (“Facility”) that dehydrates, stores, and ships sweet potato products. (DE # 1, at 3.) The Facility included “an office/processing plant” and “two large multi-story steel silos” for storage of the finished product. (Id. at 4.) Natural Blend secured commercial property insurance for the Facility from American Select, effective 26 February 2015 through 26 February 2016. (Id.) Natural Blend cancelled this policy on 15 November 2015 and replaced it with a Hanover policy, effective 15 November 2015 through 15 November 2016. (Id. at 4-5; DE # 16, at 3.)

         In early 2015, Natural Blend experiencing difficulty removing the product from one or both silos-the pellets were not flowing freely from the silo into the screw conveyor. (DE # 1, at 6; DE # 16, at 4.) Natural Blend sought assistance with the problem from SiloSource, which mobilized a crew to begin work around 1 June 2015. (DE # 1, at 7; DE # 16, at 5.) American Select contends that by 14 July 2015 materials from the silos had a noxious odor and carbon monoxide gas levels were such that crews were forced to cease their efforts. (DE # 1, at 7.) American Select also contends that on or around 16 July 2015, product from the silo appeared blackened and moldy, and that scraps caught fire when exposed to open air. (Id.) In the following weeks, the carbon monoxide levels in the silo continued to rise, requiring breathing equipment for the crews to continue work. (DE # 1, at 8; DE # 16, at 5.) SiloSource left the job site in August 2015. (DE # 1, at 8; DE # 16, at 6.) Natural Blend contends that the roof door and some probe ports of the west silo were left partially open and/or uncovered, causing rain to leak inside onto the product. (DE # 16, at 6.) After SiloSource's departure, Natural Blend retained Mole-Master to continue the efforts to unclog the west silo. (DE # 1, at 8; DE # 16, at 6.)

         Mole-Master initiated work at the Facility some time after 31 August 2015. (DE # 1, at 8.) Natural Blend alleges that two different Mole-Master crews attempted work on the project. (DE # 16, at 6.) Around 10 November 2015, Natural Blend claims Mole-Master left the jobsite to brainstorm ideas and on 17 November 2015, after inspecting the silo, told Natural Blend that they would return with a solution. (Id. at 6-7.) On 27 November 2015, a plant manager for Natural Blend allegedly discovered the product in the west silo was on fire. (DE # 16, at 7.) Ultimately, the fire destroyed both the finished stock and the structure itself. (Id.; DE # 1, at 9.)

         Following the fire, Natural Blend filed a claim against the Hanover commercial property policy. (DE # 1, at 9; DE # 16, at 2.) Hanover denied this claim. (DE # 1, at 9; DE # 16, at 2.) Natural Blend then filed a claim under the American Select policy. (DE # 1, at 10; DE # 16, at 2.) American Select informed Natural Blend of its position that the loss was not covered under its policy. (DE # 16, at 22; DE # 16-4.) Thereafter, American Select initiated this action seeking a declaratory judgment as “to the applicability and interpretation” of the two insurance contracts. (DE # 1, at 1.) Natural Blend alleges factual disputes and joins in American Select's request for a resolution of the rights and obligations of the parties. (DE # 16, at 16, 39.) Natural Blend also filed counterclaims against American Select and cross-claims against Hanover for breach of contract, negligence and/or negligent misrepresentation, bad faith, unfair and deceptive trade practices, and breach of the covenant of good faith and fair dealing. (DE # 16, at 21-32.) Additionally, Natural Blend filed third-party claims against Manry-Rawls and SIA for negligence and/or negligent misrepresentation, against SiloSource for breach of contract and negligence, and against Mole-Master for negligence. (Id. at 33-38.)

         II. DISCUSSION

         A. Motions to Dismiss

         American Select and Hanover move, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss Natural Blend's claims of negligence and/or negligent misrepresentation, bad faith, unfair and deceptive trade practices, and breach of covenant of good faith and fair dealing. To survive a 12(b)(6) motion to dismiss, the “‘[f]actual allegations must be enough to raise a right to relief above the speculative level, '” and thus nudge the claim from conceivable to plausible. Vitol, S.A. v. Primerose Shipping Co., 708 F.3d 527, 543 (4th Cir. 2013) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plaintiff must “demonstrate more than ‘a sheer possibility that a defendant has acted unlawfully.'” Id. (citations omitted). Mere recitation of the elements of a claim is insufficient. Id. (citations omitted). Instead, the plaintiff must plead facts, which when accepted as true, show (rather than simply allege) that the plaintiff is entitled to relief. Id. (citations omitted).

         1. Negligence and/or Negligent Misrepresentation

         American Select contends Natural Blend's negligence-based claims should be dismissed pursuant to the Economic Loss Rule. (DE # 31, at 6.) Similarly, Hanover contends the claims should be dismissed because they are not “sufficiently distinct” from the breach of contract claim. (DE # 33, at 5-6.) Hanover also contends that the alleged failure to obtain and act upon accurate pre-application information did not result in damage to Natural Blend, and thus, the claims should be dismissed for that reason also. (Id. at 7.)

         The Economic Loss Rule “‘prohibits recovery for purely economic loss in tort when a contract . . . operates to allocate risk.'” Severn Peanut Co., Inc. v. Indus. Fumigant Co., 807 F.3d 88, 94 (4th Cir. 2015) (quoting Kelly v. Georgia, Pac. LLC, 671 F.Supp.2d 785, 791 (E.D. N.C. 2009)). Thus, “[o]rdinarily, a breach of contract does not give rise to a tort action by the promisee against the promisor.” Ellis v. Louisiana-Pacific Corp., 699 F.3d 778, 782 (4th Cir. 2012) (citation omitted). This is true even when the failure to perform the terms of the contract “was due to negligent or intentional conduct of that party . . . .” Spillman v. Am. Homes of Mocksville, Inc., 422 S.E.2d 740, 741 ( N.C. Ct. App. 1992). “‘It is the law of contract, not tort law, ‘which defines the obligations and remedies of the parties in such a situation.'” Legacy Data Access, Inc. v. Cadrillion, LLC, 889 F.3d 158, 164 (4th Cir. 2018) (quoting Broussard v. Meineke Disc. Muffler Shops, Inc., 155 F.3d 331, 346 (4th Cir. 1998)). Accordingly, tort claims are limited to those “which are identifiable and distinct from the primary breach of contract claim.” Legacy Data Access, 886 F.3d at 164 (internal quotation marks ...


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