“[F]ederal courts have a duty to consider their subject matter jurisdiction in regard to every case and may raise the issue sua sponte.”
How later courts described this case
- “[F]ederal courts have a duty to consider their subject matter jurisdiction in regard to every case and may raise the issue sua sponte.”
Written by the judges who cited it.
The opinion
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
CERTAIN UNDERWRITERS AT LLOYDS ) CASE NO. 5:19-cv-1246
LONDON SUBSCRIBING TO POLICY NO. )
HMPL 18-0164 AND HMPL 17-0158, )
)
PLAINTIFF, ) JUDGE SARA LIOI
)
vs. ) MEMORANDUM OPINION
)
KG ADMINISTRATIVE SERVICES, INC., )
et al., )
)
DEFENDANTS. )
Before the Court is the motion for judgment on the pleadings filed by plaintiff Certain
Underwriters at Lloyds London Subscribing to Policy No. HMPL 18-0164 and HMPL 17-0158
(“Underwriters” or “plaintiff”). (Doc. No. 16 [“Mot.”].) Defendant KG Administrative Services,
Inc. (“KG”)1 filed a memorandum in opposition (Doc. No. 34 [“Opp’n”]), and Underwriters filed
a reply (Doc. No. 35 [“Reply”]).2 For the reasons set forth herein, Underwriters’ motion is granted.
1 The complaint (Doc. No. 1 [“Compl.”]) names five additional defendants: JP Express Service, Inc. (“JP Express”),
Rains & Sons Transportation, LLC and Rains & Sons Health Care Benefit Plan (together, “Rains & Sons”), Southern
Illinois Motor Xpress, Inc. (“SIMX”), and Trucks For You, Inc. (“TFU”). They “are named as parties for purposes of
being bound by the determinations of this Court.” (Id. ¶ 8.) Defendants JP Express and TFU have jointly filed a motion
to dismiss or, alternatively, to transfer the case. (Doc. No. 22.) SIMX filed a response, not opposing dismissal but
opposing transfer. (Doc. No. 28.) Underwriters filed a brief in opposition to dismissal and/or transfer. (Doc. No. 29.)
The Court need not address the motion to dismiss/transfer and the same is denied without prejudice. For reasons that
will be made clear in this opinion, although these five defendants may (or may not) have an interest in the outcome of
this case, Underwriters has no claim against any of them and, if these five (5) defendants have any claim, it would be
against KG. Notably, as discussed herein, they have already filed complaints against KG in other courts (or made a
demand). The Court sua sponte dismisses these five defendants, without prejudice, due to lack of subject matter
jurisdiction, there being no “case or controversy” between Underwriters and any of them. See U.S. Const. art. III, § 2,
cl. 1 (limiting the jurisdiction of federal courts to “Cases” and “Controversies”); Answers in Genesis of Ky., Inc. v.
Creation Ministries Int’l, Ltd., 556 F.3d 459, 465 (6th Cir. 2009) (“[F]ederal courts have a duty to consider their
subject matter jurisdiction in regard to every case and may raise the issue sua sponte.”). This Court takes no position
as to whether the instant ruling in any way binds any or all of these five now-dismissed defendants.
2 At the time the instant motion was filed on August 14, 2019, KG was in default. But the default was set aside for
good cause shown (Doc. No. 32), and KG then filed its answer (Doc. No. 33 [“Answer”]). In its opposition brief, KG
argues that Underwriters’ motion has been rendered moot by KG’s answer. (Opp’n at 809 [all page number references
I. Legal Standard
Fed. R. Civ. P. 12(c) provides that “[a]fter the pleadings are closed—but early enough not
to delay trial—a party may move for judgment on the pleadings.” The standard of review for a
motion for judgment on the pleadings is the same as for a motion to dismiss for failure to state a
claim for relief under Rule 12(b)(6). JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581
(6th Cir. 2007). “‘For purposes of a motion for judgment on the pleadings, all well-pleaded
material allegations of the pleadings of the opposing party must be taken as true, and the motion
may be granted only if the moving party is nevertheless clearly entitled to judgment.’” Id. at 581
(quoting S. Ohio Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 479 F.2d 478, 480 (6th Cir.
1973)). The district court, however, “need not accept as true legal conclusions or unwarranted
factual inferences.” Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir. 1999) (citing Morgan v. Church’s
Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987)).
In considering a Rule 12(c) motion, the allegations in the pleadings are the Court’s primary
focus. Still, the Court may also consider “‘other materials that are integral to the [pleadings], are
public records, or are otherwise appropriate for the taking of judicial notice.’” Campbell v.
Nationstar Mortg., 611 F. App’x 288, 291 (6th Cir. 2015) (quoting Ashland, Inc. v. Oppenheimer
& Co., 648 F.3d 461, 467 (6th Cir. 2011)). The Federal Rules of Evidence permit the Court to take
judicial notice of a fact that “is not subject to reasonable dispute because it: (1) is generally known
within the trial court’s territorial jurisdiction; or (2) can be accurately and readily determined from
sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). “The court[] may
take judicial notice on its own[.]” Fed. R. Evid. 201(c)(1). The court may take judicial notice of a
are to the page ID number assigned by CMECF].) That is not so. Although Underwriters’ motion for default judgment
against KG (Doc. No. 15) was rendered moot, the instant motion was not.
2
fact at any stage of the proceedings. See Livingston Christian Sch. v. Genoa Charter Twp., 858
F.3d 996, 1008 (6th Cir. 2017) (citing Fed. R. Evid. 201, Advisory Comm. Notes (f)).
II. Discussion
A. Background
Underwriters commenced this action on May 31, 2019, seeking rescission and declaratory
judgment with respect to an errors and omissions coverage certificate of insurance that it issued to
KG (the “Lloyd’s Policy”). (Compl. ¶¶ 1, 9; Answer ¶ 9.)3
KG is a third-party administrator of self-funded health benefit plans. (Compl. ¶ 3; Answer
¶ 3.) Underwriters alleged that KG was hired by the various other defendants to administer their
self-funded health benefit plans (Compl. ¶¶ 4–7), but KG denies those allegations (Answer ¶¶ 4-
7). The other defendants have sued KG in district courts elsewhere (see Compl. ¶¶ 14, 18, 23;
Answer ¶¶ 14, 18, 23), or have made a demand against KG (Compl. ¶ 31; Answer ¶ 31). KG has
requested coverage under the Lloyd’s Policy, and Underwriters is providing a defense to KG for
the lawsuits under a complete reservation of rights. (Compl. ¶¶ 12–13; Answer ¶¶ 12–13).
In light of these complaints/demands, Underwriters claims it is entitled to rescission of the
Lloyd’s Policy, and a declaratory judgment, based on the language of the Policy and the undisputed
facts set forth below.
3 Although the complaint is not crystal clear in this regard, it appears that rescission (under Count I) is directed toward
the 2019–2020 Lloyd’s Policy (Doc. No. 1-2) and that Count II seeks a declaratory judgment with respect to coverage
under both the 2018–2019 Lloyd’s Policy (Doc. No. 1-3) and the 2019–2020 Lloyd’s Policy. At different points in
this discussion, the Court makes reference to particular policy language. Because the two policies appear to be
identical, for ease of reference, the Court treats them as the same policy and confines its citations to the 2019–2020
Lloyd’s Policy found at Doc. No. 1-2.
3
On December 28, 2018, KG submitted a renewal application to Underwriters — which KG
claims “speaks for itself[]” (Answer ¶ 34) — for a claims-made and reported certificate of
insurance for those claims that are first made against the insured and reported in writing during the
policy period. (Compl. ¶ 34 & Doc. No. 1-9 [“Renewal Application”].)
The Renewal Application contained the following language:
The Applicant’s failure to report to the Underwriters any claim made against it
during the current certificate term, or act, omission or circumstances which the
Applicant is aware of which may give rise to a claim before the expiration of the
current certificate may create a lack of coverage for each Applicant who had a basis
to believe that any such act, error, omission or circumstance might reasonably be
expected to be the basis of a claim.
(Id. ¶ 36 (quoting Renewal Application at 151 ¶ 3).) The Renewal Application also stated:
The certificate applied for provides coverage on a claims made and reported basis
and will apply only to claims that are first made against the Applicant and reported
in writing to the Underwriters during the certificate of insurance period. Claims
expenses are within and reduce the limit of liability.
(Id. ¶ 37 (quoting Renewal Application at 151 ¶ 4).) KG asserts that this language “speaks for
itself.” (Answer ¶¶ 36–37.)
On January 11, 2019, KG’s President, Robert C. Frazier, Jr., executed a warranty statement
attesting as follows:
After inquiry I, nor any principal, partner, director, officer or professional employee
have any knowledge or information of any act, error, omission, fact, circumstance
or contentions of any incident which may give rise to a claim being made against
us.
(Compl. ¶ 39 (quoting Doc. No. 1-10 [“Warranty Statement”] at 152).) Once again, KG asserts
that the Warranty Statement “speaks for itself.” (Answer ¶ 39.) As of January 11, 2019, KG had
not provided notice to Underwriters of any of the three complaints filed against it (a fact admitted
by KG (Answer ¶ 40)) and, in reliance upon the representations contained in the Warranty
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Statement, Underwriters bound coverage under the Lloyd’s Policy effective January 1, 2019 to
January 1, 2020. (Compl. ¶ 40.)
The Lloyd’s Policy contains a provision incorporating all information and statements
provided by the insured in the application and any supplemental information, and indicates that
any material misrepresentation will render the policy void. (Id. ¶ 41 (quoting Lloyd’s Policy at 39–
40).) Moreover, as a condition precedent to coverage, the Lloyd’s Policy required that a claim be
made against an insured and reported to Underwriters within the policy period. (Id. ¶ 42 (quoting
Lloyd’s Policy at 29); ¶ 43 (quoting Lloyd’s Policy at 32).) As a further condition precedent to
coverage, KG was obligated to report a claim as soon as reasonably possible, but in no event later
than 60 days after the expiration of the certificate of insurance. (Id. ¶ 45 (quoting Lloyd’s Policy
at 37).)
B. Analysis
1. Coverage for the Complaints in Other Courts
Under Ohio law, “the interpretation of insurance contracts in the first instance is one of law
for the trial court.” Ins. Co. of N. Am. v. Travelers Ins. Co., 692 N.E.2d 1028, 1033 (Ohio Ct. App.
1997) (citing Leber v. Smith, 639 N.E.2d 1159, 1163 (Ohio 1994)). “Therefore, a court is precluded
from rewriting a contract when the intent of the parties is evident, i.e., if the language of the
policy’s provisions is clear and unambiguous, the court may not resort to construction of the
language.” Id. (citations omitted).
Under a claims-made policy such as the Lloyd’s Policy, claims are covered if the “losses
… arise during the policy period, regardless of when the events underlying the claim might have
5
occurred.” McCarty v. Nat’l Union Fire Ins. Co., 699 F. App’x 464, 468 (6th Cir. 2017).4 “[T]he
coverage itself is triggered under a claims-made policy only when the claim is made to the insured
and reported to the insurer.” Id. Therefore, since “[n]otice provisions in insurance contracts are
conditions precedent to coverage, [ ] an insured’s failure to give its insurer notice in a timely
fashion bars coverage.” Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 769 N.E.2d 835,
842 (Ohio 2002).
Here, the three underlying lawsuits were filed on January 23, 2018, May 23, 2018, and
November 11, 2018. (Compl. ¶¶ 14, 18, 23; Answer ¶¶ 14, 18, 23.) As a condition precedent to
coverage under the Lloyd’s Policy, KG was required to give written notice of claims made against
it during the insurance period “as soon as reasonably possible[,]” but in no event later than “60
days after the Certificate of Insurance expiration” on January 1, 2020. (Lloyd’s Policy at 37.) KG
gave notice of two of the lawsuits on or about April 10, 2019, and the third, on or about April 19,
2019. (Compl. ¶¶ 17, 22, 30; Answer ¶¶ 17, 22, 30.) Therefore, there would be no coverage under
the 2018–2019 Lloyd’s Policy due to the failure of the condition precedent regarding notice.
In addition, the 2019–2020 Lloyd’s Policy was not effective until January 1, 2019, so these
January, May, and November 2018 claims were not made against KG within the policy period of
2019–2020 and, therefore, are also not covered under the 2019–2020 Lloyd’s Policy.
Underwriters is entitled to a declaratory judgment as to both the policies that it is not
obligated to defend or indemnify KG for any liability arising out of the three complaints filed in
other courts.
4 This is in contrast to an occurrence-based policy, which “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.” McCarty, 699 F. App’x at 468.
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2. Consequences of False Warranties
Underwriters also argues that, in any event, the 2019–2020 Lloyd’s Policy is void ab initio
due to false warranties made by KG when it applied to renew the 2018–2019 Lloyd’s Policy.
The Ohio Supreme Court has observed that “[s]tatements by an insured fall into two
classes—those which constitute warranties, and those which constitute representations.” Allstate
Ins. Co. v. Boggs, 271 N.E.2d 855, 858 (Ohio 1971). “[A] representation is a statement made prior
to the issuance of the policy which tends to cause the insurer to assume the risk. A warranty is a
statement, description or undertaking by the insured of a material fact either appearing on the face
of the policy or in another instrument specifically incorporated in the policy.” Id. (citation omitted).
The difference is important because, if a statement is deemed to be a representation, “a
misstatement by the insured will render the policy voidable[,]” whereas “[i]f the statement is a
warranty, a misstatement of fact voids the policy ab initio.” Id.
“[T]he mere fact that a statement of an insured is incorporated in a policy does not
necessarily make such statement a warranty.” Id. Rather, if it is the insurer’s purpose “to provide
that a misstatement by the insured shall render the policy void ab initio, such facts must appear
clearly and unambiguously from the terms of the policy.” Id.
Boggs established a two-pronged test for determining whether a
misstatement qualifies as a warranty. Am. Family Ins. Co. v. Johnson, 8th Dist. No.
93022, 2010-Ohio-1855, 2010 WL 1712240, ¶ 16. The first prong requires that the
“representation [ ] plainly appear on the policy [ ] or be plainly incorporated into
the policy * * * .” Id. Under the second prong, the policy must plainly warn that a
misstatement or misrepresentation renders the policy void from its inception. Id.
Goodman v. Medmarc Ins., 977 N.E.2d 128, 132 (Ohio Ct. App. 2012) (alterations in original). As
to the second prong, courts require that “the policy . . . unequivocally state that a misrepresentation
will void the policy[,] [and] a clause that gives the insurer discretion to void the policy will not
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suffice.” O’Donnell v. Fin. Am. Life Ins. Co., 328 F.R.D. 174, 182 (S.D. Ohio 2017) (emphasis in
original) (comparing cases).
The Lloyd’s Policy in this case unambiguously indicated the consequences of concealment
or misrepresentation of a material fact in the application. By acceptance of the Certificate of
Insurance, KG warranted that:
1. All of the information and statements provided to Underwriters by the Insured,
including but not limited to, the application and any supplemental information, are
true, accurate and complete and will be deemed to constitute material
representations made by the Insured;
2. This Certificate of Insurance is issued in reliance upon the Insured’s
representations;
3. This Certificate of Insurance, endorsements thereto, together with the completed
and signed application and any and all supplementary information and statements
provided by the Insured to the Underwriters (all of which are attached hereto and
deemed to be incorporated herein) embody all of the agreements existing between
the Insured and the Underwriters and shall constitute the entire contract between
the Insured and the Underwriters; and
4. Any material misrepresentation or concealment by the Insured or the Insured’s
agent will render the Certificate of Insurance null and void and relieve the
Underwriters from all liability herein.
(Lloyd’s Policy at 39–40.) Pursuant to the above language, KG’s Warranty Statement that there
was no “knowledge or information of any act, error, omission, fact, circumstance or contentions
of any incident which may give rise to a claim being made against [KG]” (Warranty Statement at
152) was expressly incorporated as part of the insurance contract. Because that was a false
statement, the 2019–2020 Lloyd’s Policy was rendered void ab initio. See Horton v. Safe Auto Ins.
Co., No. 00AP-1017, 2001 WL 664421, at *3 (Ohio Ct. App. June 14, 2001) (finding language in
the policy that it would be “null and void cancelled” if the insured provided false information in
8
the application sufficient under Boggs to warn the insured of the consequence of providing such
false information).
In its opposition brief, KG argues in conclusory fashion that it was not until April 2019
that it “determined that these were ‘claims’ pursuant to the Lloyd’s [P]olicy.” (Opp’n at 810.) The
claims were therefore, in KG’s view, “noticed by KG to [Underwriters] as soon as reasonably
possible.” (Id.) KG also argues that, when the warranty was made on January 11, 2019, the
statement “was not a material misrepresentation” because KG was “not aware of any incident
which may give rise to a claim[.]” (Id.) Finally, KG argues that the three complaints “set forth
numerous claims against KG[,] . . . [s]ome [of which] can be construed as claims involving acts or
omission in KG’s performance of professional services not subject to the exclusions within the
policy.” (Id. at 811.)
In reply, Underwriters argues that the “lawsuits clearly constitute ‘claims’ as the term is
defined” in the Lloyd’s Policy. (Reply at 816.) The Lloyd’s Policy defines “claim” to include a
lawsuit:
Claim means a demand for money or services naming the Insured arising out of an
act or omission in the performance of professional services. A claim includes the
service of suit or the institution of an arbitration proceeding against the
Insured.
(Lloyd’s Policy at 34 (emphasis added).)
In light of the Lloyd’s Policy’s definition of “claim,” KG clearly knew of the existence of
the claims in the three lawsuits and falsely warranted otherwise in the Renewal Application,
rendering the 2019–2020 Lloyd’s Policy void ab initio by its terms. Although the TFU Demand
Letter occurred within the policy period, i.e., April 2, 2019 (see Doc. No. 1-8), and although notice
was timely provided by KG on May 2, 2019 (see Compl. ¶ 33), Underwriters is entitled to a
9
declaratory judgment that it is not obligated to defend or indemnify KG for any liability arising
out of the TFU Demand Letter because the 2019–2020 Lloyd’s Policy is void ab initio due to the
false warranty.
3. Exclusion of Coverage Under the Lloyd’s Policy
Underwriters also argues that the Lloyd’s Policy unambiguously excludes coverage for the
liabilities alleged in the three complaints and the demand letter. Given the discussion above, the
Court need not address this contractual argument.
III. Conclusion
For the reasons set forth herein, defendants JP Express Service, Inc., Rains & Sons
Transportation, LLC, Rains & Sons Health Care Benefit Plan, Southern Illinois Motor Xpress,
Inc., and Trucks For You, Inc. are sua sponte dismissed without prejudice due to lack of subject
matter jurisdiction, there being no case or controversy alleged in the complaint as between plaintiff
Underwriters and any of these five (5) defendants.
Plaintiff Underwriters’ motion for judgment on the pleadings (Doc. No. 16) is granted.
Underwriters is entitled to rescission of the 2019–2020 Lloyd’s Policy because it is void ab initio
due to KG’s false warranty. As a result, Underwriters is entitled to a declaratory judgment that it
is not obligated to defend and/or indemnify KG as to any liability in the TFU Demand Letter.
Further, due to the failure of a condition precedent to coverage under the 2018–2019 Lloyd’s
Policy (i.e., timely notice), Underwriters is entitled to a declaratory judgment that it is not obligated
to defend and/or indemnify KG with respect to the three lawsuits filed in other courts.
10
There being nothing further before this Court,° this case is dismissed.
IT IS SO ORDERED.
Dated: December 12, 2019 □□ □□□
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE
> The Court acknowledges KG’s counterclaim for declaratory judgment. (Doc. No. 33.) However, the instant ruling
either resolves the allegations therein or renders them moot.
11