Insurance: Policyholder alleges carrier breached multiple duties

Where a policyholder alleged its carrier breached its contractual obligations to defend, indemnify and deal in good faith with the policyholder during its defense the underlying matter, but the underlying matter remains pending before the administrative agency, the suit was dismissed as premature.

Background

The McHenry Management Group Inc., or TMMG, alleges that ACE American Insurance Company breached its contractual obligations to defend, indemnify and deal in good faith with TMMG throughout an underlying action involving a claim under the Defense Base Act. ACE has filed a motion to dismiss.

Analysis

TMMG requests the court review whether ACE’s misrepresentations in the underlying action breached its contractual obligations to TMMG under the policy. TMMG contests its liability in the underlying action and credits ACE’s alleged misrepresentations for the damages it has incurred appealing the liability decision.

These allegations rest on the foundation that, absent ACE’s breach of contract in the underlying action, the outcome of the underlying action may have been different: TMMG may not have been found liable and may not have incurred the damages it seeks in this action. Undertaking such a counterfactual analysis requires the court to evaluate the merits of the administrative law judge’s liability decision, which is currently pending before the Department of Labor’s Benefits Review Board.

The Defense Base Act is an extension of the Longshore and Harbor Workers’ Compensation Act, or LHWCA. The LHWCA requires the order to be “final” to obtain any judicial review of a claim arising under the statute. Thus, this court cannot reach the merits of this case without overcoming the jurisdictional hurdle.

TMMG frames its breach of contract claim here as distinct from an appeal on the merits of the administrative law judge’s ruling. The court is skeptical. However, even if this case is not an attempt to circumvent the LHWCA’s judicial review procedure, factual development is necessary to understand the issues.

Specifically, the status of the underlying action would affect the court’s analysis of the allegations and damages sought here. The court will not know the result of the alleged unfavorable representation until the Board rules on the issue of liability. In other words, this case is not ripe for review.

The LHWCA allows TMMG to seek judicial review once the Board has issued its final order, at which point TMMG may refile this action. However, the court does not yet have jurisdiction to review the underlying administrative decision. Therefore, TMMG’s claim must be dismissed.

Defendant’s motion to dismiss granted.

The McHenry Management Group Inc. v. ACE American Insurance Company, Case No. 2:25-cv-54, Sept. 4, 2025. EDVA at Norfolk (Jackson). VLW 025-3-362. 8 pp.