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Allied World Surplus Lines Insurance Co. v. Blue Cross And Blue Shield Of South Carolina

United States District Court, D. South Carolina, Columbia Division

August 3, 2017

Allied World Surplus Lines Insurance Company, formerly known as Darwin Select Insurance Company and Allied World Specialty Insurance Company, formerly known as Darwin National Assurance Company, Plaintiffs,
Blue Cross and Blue Shield of South Carolina, Defendant.


          Richard Mark Gergel United States District Court Judge

         This matter is before the Court on Defendant Blue Cross and Blue Shield of South Carolina's ("BCBS") motion to stay or dismiss this insurance coverage action. (Dkt. No. 20.) For the reasons set forth below, the Court grants the motion and dismisses this action without prejudice.

         I. Background

         Allied World seeks a declaratory judgment under the Federal Declaratory Judgment Act of its obligations under policies of errors and omissions liability insurance and directors and officers liability insurance sold to BCBS for underlying civil actions against BCBS, the Blue Cross Blue Shield Association, and other Blue Plans. (Dkt. No. 1 ¶¶ 8-9.) The underlying actions were grouped into two tracks, the Provider Track and the Subscriber Track, and transferred to the United States District Court for the Northern District of Alabama for coordinated pretrial proceedings.

         The insurance policies have an Alternative Dispute Resolution ("ADR") provision, requiring the parties to arbitrate or to mediate "all disputes which may arise under or in connection with this Policy, " and allowing the parties to choose between arbitration and mediation. (Dkt. No.5-4 at 23-24 (ADR requirement in errors and omissions policy); Dkt. No. 5-5 at 11-12 (ADR requirement in directors and officers policy).) Where mediation occurs, the ADR requirement provides that no judicial proceeding shall be commenced until at least 120 days has elapsed since the termination of mediation. The parties have engaged in mediation before retired Judge Layn R. Phillips, but the parties dispute whether that mediation has satisfied the ADR provision. BCBS moves to stay or to dismiss this action, arguing Allied World has not satisfied the ADR requirement.

         II. Legal Standard

         A motion to dismiss for lack of subject-matter jurisdiction filed under Rule 12(b)(1) of the Federal Rules of Civil Procedure challenges the jurisdiction of a court to adjudicate the matter before it. Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006). A challenge to subject-matter jurisdiction may contend either 1) that the complaint fails to allege facts sufficient to establish subject matter jurisdiction or 2) "that the jurisdictional allegations of the complaint [are] not true." Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). Where the sufficiency of the jurisdictional allegations in the complaint is challenged facially, "the facts alleged in the complaint are taken as true, and the motion must be denied if the complaint alleges sufficient facts to invoke subject matter jurisdiction." Kerns v. United States, 585 F.3d 187, 192 (2009). If, however the defendant contends "that the jurisdictional allegations of the complaint [are] not true, " the plaintiff bears the burden to prove facts establishing jurisdiction and the district court may "decide disputed issues of fact." Id. In that case, because the plaintiffs allegations are not presumed true, "the court should resolve the relevant factual disputes only after appropriate discovery." 24th Senatorial Dist. Republican Comm. v. Alcorn, 820 F.3d 624, 629 (4th Cir. 2016). And where "the jurisdictional facts and the facts central to a tort claim are inextricably intertwined, " so that a challenge to the truth of the jurisdictional facts indirectly challenges the plaintiffs claims on the merits, "the trial court should ordinarily assume jurisdiction and proceed to the intertwined merits issues." Kerns, 585 F.3 at 193.

         III. Discussion

         As a threshold issue, the Court must determine whether BCBS's motion to dismiss because of non-compliance with the ADR provisions should be considered under Rule 12(b)(1) of the Federal Rules of Civil Procedure. BCBS argues dismissal under Rule 12(b)(1) is appropriate because the underlying claims are not ripe for consideration until, inter alia, the mediation requirement is satisfied. "The doctrine of ripeness prevents judicial consideration of issues until a controversy is presented in clean-cut and concrete form." Miller v. Brown, 462 F.3d 312, 318-19 (4th Cir. 2006) (internal quotation marks omitted). To determine if a case is ripe, courts "balance the fitness of the issues for judicial decision with the hardship to the parties of withholding court consideration." Id. at 319 (internal quotation marks omitted). "[I]t is settled that a case is fit for judicial decision when the issues are purely legal and when the action in controversy is final and not dependent on future uncertainties." Lansdowne on the Potomac Homeowners Ass 'n, Inc. v. OpenBand at Lansdowne, LLC, 713 F.3d 187, 198 (4th Cir. 2013) (internal quotation marks omitted).

         Where mediation is a condition precedent to litigation, and where that mediation has not yet been completed but may be completed in the future, the underlying action in controversy is dependent upon future uncertainties: whether the required mediation will occur and, if so, whether (or to what extent) the mediation will resolve the underlying claims. Moreover, withholding judicial review until completion of mediation that is condition precedent to litigation imposes no hardship on the parties. The Court therefore concludes that where a mediation condition precedent to litigation has not yet been satisfied but may be satisfied in the future, the merits of the underlying claim are not ripe for judicial review.[1] If a dispute is not ripe for judicial review, then dismissal is appropriate under Rule 12(b)(1). Sansotta v. Town of Nags Head, 724 F.3d 533, 548 (4th Cir. 2013) ('"[R]ipeness is a question of subject matter jurisdiction.'" (quoting Reahard v. Lee County, 978 F.2d 1212, 1213 (11th Cir. 1992)).[2]

         The Court therefore proceeds to determine whether the ADR requirement has been satisfied. Coverage issues have been mediated before Judge Phillips, but BCBS argues that mediation fails to satisfy the ADR requirement because the AAA did not administer the mediation and because the mediation has not terminated. (Dkt. No. 20 at 4-6.)

         The Court previously ruled that Allied World and BCBS waived strict compliance with the requirement that the AAA administer the mediation when they voluntarily mediated the dispute before Judge Phillips. (Dkt. No. 24 at 2.) The Court also ruled that whether mediation has concluded by application of the relevant AAA rules, because the parties agreed to those rules in the contract. (Id. at 3.) AAA rules provide that mediation terminates (1) by execution of a settlement agreement, (2) by a written or verbal declaration from the mediator that further efforts would not be helpful, (3) by a written or verbal declaration of all parties that mediation has terminated, or (4) "[w]hen there has been no communication between the mediator and any party or party's representative for 21 days following the conclusion of the mediation conference." Mediation Procedures of the American Arbitration Association, M-13 ("Termination of Mediation") (2009). The Court therefore ordered supplemental briefing on the following questions:

(1) Did the mediator, Judge Phillips, ever declare that further mediation would not contribute to a resolution of the dispute, and, if so, when?
(2) Did Judge Phillips communicate with any party in the 21-day period following the last ...

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