NCMIC Insurance Company v. Allied Professionals Insurance Company and Charlotte…

In this insurance coverage dispute, NCMIC Insurance Company (NCMIC) issued a professional liability policy to Valley Chiropractic Clinic (the Clinic), while Allied Professionals Insurance Company (Allied) issued a separate policy to massage therapist Charlotte Erdmann individually. After a patient alleged injuries from a May 2019 massage session, a malpractice suit was filed in Minnesota state court against both Erdmann and the Clinic. NCMIC twice refused to defend or indemnify Erdmann, taking the position that Allied's coverage was primary and any NCMIC coverage would be excess. The underlying malpractice action settled in October 2022: Allied paid $1.6 million on Erdmann's behalf and NCMIC paid $250,000 on the Clinic's behalf.

NCMIC had filed this federal declaratory judgment action in August 2022 seeking a ruling that it owed no defense or indemnity obligations to Erdmann, or alternatively that its coverage was excess to Allied's. Erdmann filed counterclaims in September 2022 seeking a declaration that she was entitled to up to $1,000,000 in coverage under the NCMIC policy and alleging breach of contract based on NCMIC's refusal to defend her and contribute to the settlement. She sought damages, interest, and attorney fees.

Following a dispute over whether coverage issues had to go to arbitration (which generated a separate appeal), NCMIC asked Erdmann to stipulate to dismissal and agree to be bound by whatever ruling came out of proceedings without her. She declined. NCMIC then moved under Federal Rule of Civil Procedure 41(a)(2) — which governs a plaintiff's voluntary dismissal of its own claims — to dismiss Erdmann from the case entirely and to have her counterclaims dismissed as moot.

Judge Jeffrey M. Bryan applied the rule that when a defendant has filed counterclaims before a plaintiff moves to dismiss, and the defendant objects, the court may not dismiss the action in a way that destroys jurisdiction over those counterclaims and prevents their independent adjudication. The court cited Rule 41(a)(2), related case law including Twin City Fire Ins. Co. v. Mattmiller, and treatises including Moore's Federal Practice and Wright & Miller's Federal Practice & Procedure. The court found that (1) the parties are diverse — citizens of different states — and the amount in controversy exceeds $75,000, satisfying the requirements for federal jurisdiction under 28 U.S.C. § 1332 (diversity jurisdiction), so the counterclaims can proceed independently; and (2) Erdmann identified no specific prejudice from dismissal of NCMIC's claims while her counterclaims remain pending.

The court therefore granted the motion only as to NCMIC's own claims against Erdmann, dismissing those without prejudice (meaning NCMIC could potentially reassert them later). The motion was denied as to Erdmann's counterclaims, which will continue for independent adjudication. The court declined to address NCMIC's mootness arguments in the context of a Rule 41 motion, stating those arguments are better suited to a motion brought under Rule 12 (which covers motions to dismiss for failure to state a claim or lack of jurisdiction, among others).