Ameriprise Captive Ins. Co. v. Audatex N. Am., Inc.

Docket Number1:22-cv-05964 (JLR)
Decision Date30 May 2023
CourtU.S. District Court — Southern District of New York


Plaintiff Ameriprise Captive Insurance Company (“Ameriprise” or Plaintiff), as subrogee of IDS Property Casualty Insurance Company (“IDS”), commenced this action against Defendant Audatex North America, Inc. (“Audatex” or Defendant), for breach of contract. See generally ECF No. 1. Plaintiff alleges that Defendant breached its contractual obligations to indemnify the cost of defending and settling another lawsuit, Zuern v. IDS Prop. Cas. Ins. Co., No. 3:19-cv-06235 (MLP), (W.D Wash.) (Zuern), and carry certain insurance. Pending before the Court is Defendant's motion to dismiss with prejudice under Federal Rule of Civil Procedure (“Rule”) 12(b)(6). ECF No 22.[1] For the following reasons, Defendant's motion to dismiss is GRANTED.


I. The Parties

Plaintiff Ameriprise is a Vermont insurance company with its principal place of business in Minnesota. Compl. ¶ 6. Ameriprise provided insurance coverage to its affiliate, IDS, for purposes of the Zuern litigation. Id. ¶¶ 1, 6, 35, 47. IDS is a Wisconsin insurance company with its principal place of business in Wisconsin. Id. ¶ 7. Because the parties agree that the corporate distinction between Ameriprise and IDS is “immaterial for purposes of this motion to dismiss,” the Court hereafter refers to the Ameriprise and IDS entities collectively as “Ameriprise” or Plaintiff.” Br. at 3 n.4 (referring to entities collectively as “Ameriprise” or Plaintiff); see Compl. ¶ 47 (alleging that Ameriprise “is subrogated to the rights of” IDS).

Defendant Audatex is a Delaware corporation with its principal place of business in California. Compl. ¶ 8. Defendant sells services and software to insurance companies, including to Plaintiff. Id. ¶ 13.

II. The Agreement

In October 2011, the parties entered into the Application Service Provider Agreement (the “Agreement”), and a Statement of Work for purposes of implementing the Agreement. Id. ¶¶ 15-16; see Agreement.[3]Under the Agreement, Defendant agreed to provide software and services to Plaintiff, including its vehicle valuation software “Autosource.” Id. ¶¶ 16-19.

Autosource is a software tool used to determine the “total cash value” of vehicles and apply a “typical negotiation adjustment” (“TNA”) to that value. Id. ¶ 20. A TNA is the reduction a buyer can normally obtain at a dealership by negotiating down the advertised price of a vehicle. Id. The TNA applied by Autosource typically reduces the value of vehicles by approximately 6 to 7 percent. Id. ¶¶ 19-21. Plaintiff used the Autosource software in its auto insurance business to determine the value of a vehicle when an insured would submit a claim for the total loss of their vehicle. Id. ¶ 19.

The Agreement contains several provisions that are at issue on this motion. Sections 5.11 and 25.26.1 impose certain responsibilities on Plaintiff. Section 5.11 states that Plaintiff “assumes exclusive responsibility for . . . the consequences of any instructions Ameriprise gives” to Defendant. Section 25.26.1 further states that Plaintiff “is responsible for: (i) compliance with all laws and governmental regulations affecting Ameriprise's business, and (ii) any use Amerpirse [sic] may make of the Services to assist Ameriprise in complying with such laws and governmental regulations.”

With respect to Defendant's responsibilities, Section 25.26.1 provides that Defendant “ha[s] no responsibility relating thereto (including, without limitation advising Ameriprise of Ameriprise's responsibility in complying with any laws or governmental regulations affecting Ameriprise's business) and that [i]n no event shall Ameriprise rely solely on Ameriprise's use of the Services in complying with any laws and governmental regulations.” Section 18.1.7 states that [Defendant] (and the Services, including the System) shall comply with all applicable federal, state, local and foreign rules, laws and regulations, in the performance of its obligations hereunder, including the Foreign Corrupt Practices Act, the Gramm-Leach-Bliley Act, the Sarbanes Oxley Act, Regulation SP, Payment Card Industry - Data Security Standards, and Massachusetts 201 C.M.R. sections 17.00-17.04, and (ii) it shall obtain all applicable permits and licenses in connection with its obligations under this Agreement.”

Section 20 of the Agreement contains an indemnification provision, which reads, in relevant part:

20.1 Vendor Indemnity. Notwithstanding any other provision herein, [Audatex] agrees to defend, at its own expense, any claim, suit or action or proceeding brought against Ameriprise or its Affiliates, and each of their respective directors, officers, employees and agents (collectively, “Indemnitees”) and shall indemnify and hold Indemnitees harmless from and against any and all claims, judgments, awards, demands, liabilities, losses, costs, damages or expenses (including reasonable attorneys' fees and costs of settlement) (collectively, “claims”), resulting from or arising out of:
20.1.1 the System, Services, Content (specifically excluding Ameriprise Content), or any work product provided by [Audatex] hereunder, or the use thereof, and/or
20.1.2 any third party claims arising out of [Audatex's] representations, warranties, covenants, or other obligations under Sections 10.3 (“Information and Physical Security”), 12.1 (“Legal Compliance”), 12.3 (“Policy Compliance”), and/or Articles 15 (“Encryption Export”) or 18 (“Representations, Warranties and Covenants”).

Agreement § 20.1 (capitals and emphasis omitted); see Compl. ¶¶ 38-39.

The Agreement further requires Defendant “to carry certain insurance as described i Section 24 and Schedule 8.0.” Comp. ¶ 44. Section 24 contains five different contractual provisions. See Agreement §§ 24.1-24.5. Schedule 8.0 enumerates nine different types of insurance, including coverage for employee fidelity bonds, professional liability/errors and omissions, workers compensation, employer's liability, commercial general liability insurance, medical payments, commercial auto liability, umbrella/excess liability, and electronic data processing/privacy and network security insurance.

The Agreement also contains a choice-of-law clause selecting New York law. See id. § 25.6.

III. The Zuern Litigation

In November 2019, auto-insurance customers brought a class-action lawsuit against Ameriprise. Compl. ¶ 22; see Zuern Compl.[4] The Zuern litigation alleged that Ameriprise sold insurance contracts that were legally required to, but in fact did not, cover the total loss of insured vehicles based on “the actual cash value of the vehicle or the amount necessary to repair or replace the property.” Compl. ¶¶ 23, 24. In short, the lawsuit alleged that Ameriprise used reports from AudaExplore, now Audatex, to determine the value of vehicles for such coverage; that “Ameriprise instruct[ed] AudaExplore as to what specific data to include in the report as the basis for the valuation,” including whether to include a TNA; and that Ameriprise's use of a TNA in this valuation process violated its customer's insurance contracts and Washington law. Zuern Compl. ¶¶ 19, 25-26.

In December 2020, Ameriprise settled the Zuern litigation. Compl. ¶ 28. The settlement required the creation of a $1,750,000 settlement fund, which would be distributed to class members. Id. The settlement class comprised:

All persons insured by a contract of automobile insurance issued by IDS to a Washington resident, and who, from October 25, 2013 through the date of the order granting preliminary approval, received compensation for the total loss of their vehicles under their First Party Coverages (Comprehensive, Collision, and UIM) and received a total loss valuation from IDS based upon an Audatex valuation.

Id. ¶ 31. The settlement released all claims “relating to or arising out of the valuation, adjudication, or claims handling of any automobile total loss claim adjudicated using any valuation report prepared or provided by Audatex,” and named Audatex as a “Released Party.” Id. ¶¶ 32, 33. The court approved the settlement and entered judgment in May 2021. Id. ¶ 34. Ameriprise ultimately paid a total of approximately $2,500,000 to defend and resolve the Zuern litigation. Compl. ¶ 35.

The Complaint alleges that the allegations in the Zuern complaint were not unique, and customers have sued numerous other insurance companies and Audatex in part based on Audatex's vehicle valuation system and services. Id. ¶¶ 36-37 (collecting cases).

IV. The Alleged Breaches

After receiving notice of the Zuern litigation, Plaintiff demanded that Defendant defend it against the lawsuit and indemnify Plaintiff for any loss. Id. ¶ 41. Defendant declined to do so. Id. After the court entered final judgment in the Zuern litigation, Plaintiff again demanded that Defendant indemnify it for all costs paid to resolve the lawsuit. Id. ¶ 43. Defendant again declined to indemnify Plaintiff. Id. Plaintiff further asked Defendant to “provide contact information for the insurance carrier that issued the required coverage” under Section 24 and Schedule 8.0 of the Agreement. Id. ¶¶ 44-45. Defendant did not provide proof of such coverage in response to Plaintiff's request. Id. ¶ 46.

V. Procedural History

Plaintiff filed the Complaint on July 13, 2022. See id. The Complaint asserts a single count for breach of contract alleging that Defendant breached the Agreement by refusing to defend and indemnify against the Zuern litigation and failing to obtain...

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