Known Litig. Holdings, LLC v. Navigators Ins. Co.

• Citation: 934 F.Supp.2d 409
• Decision Date: 20 March 2013
• Docket Number: Civil No. 3:12cv269 (JBA).
• Parties: KNOWN LITIGATION HOLDINGS, LLC, Plaintiff, v. NAVIGATORS INS. CO., Navigators Management (UK) Ltd, and Certain Interested Underwriters of Lloyd's of London, Defendants.
• Court: U.S. District Court — District of Connecticut

934 F.Supp.2d 409

KNOWN LITIGATION HOLDINGS, LLC, Plaintiff,

v.NAVIGATORS INS. CO., Navigators Management (UK) Ltd, and Certain Interested Underwriters of Lloyd's of London, Defendants.

Civil No. 3:12cv269 (JBA).

United States District Court,

D. Connecticut.

March 20, 2013.

Patrick J. Monahan, II, Roy W. Breitenbach, Garfunkel Wild, P.C., Stamford, CT, for Plaintiff.

Michael A. Bono, Wade, Clark, Mulcahy, New York, NY, Jeffrey F. Gostyla, Halloran & Sage, Hartford, CT, for Defendants.

RULING ON DEFENDANTS' MOTION TO DISMISS

JANET BOND ARTERTON, District Judge.

In this action, Plaintiff Known Litigation Holdings, LLC, the successor assignee of Domestic Bank, seeks to recover insurance proceeds from Defendants Navigators Insurance Company, Navigators Management Ltd., and certain interested underwriters of Lloyd's of London (collectively “Defendants” or “Navigators”), in its capacity as loss payee under several insurance policies Defendants issued to New England Cash Dispensing (“NECD”) and its affiliate, Integrated Merchant Systems (“IMS”). Pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(7), Defendants now move [Doc. # 25] to dismiss Plaintiff's Amended Complaint [Doc. # 24] in its entirety. Defendants argue (1) that Plaintiff lacks standing because it is not a named insured under the Courier Risks Policy, (2) that Plaintiff's claims are time-barred by the suit limitation clause in the Courier Risks Policy, (3) that Plaintiff has failed to join NECD and IMS, who are necessary parties to the suit, (4) that Plaintiff's estoppel claims should be dismissed because Connecticut does not recognize an affirmative cause of action for equitable or promissory estoppel, and (5) that Plaintiff fails to state a claim for which relief can be granted. For the following reason, Defendants' motion is denied.

I. Factual BackgroundA. The NECD Agreement

Plaintiff is the successor assignee of certain claims of Domestic Bank arising out of Domestic Bank's status as a loss payee on several insurance policies underwritten by Defendants. ( See Am. Compl. [Doc. # 24] ¶ 1.) Beginning in March 2000, Domestic Bank entered into an agreement with NECD (the “NECD Agreement”), pursuant to which NECD was responsible for servicing Domestic Bank's ATMs. ( See id. ¶¶ 17–18; NECD Agreement, Ex. A to Am. Compl.). On May 12, 2006, Domestic Bank entered into a second agreement with NECD and IMS (the “Courier Agreement”), pursuant to which NECD and IMS were responsible for transferring cash owned by Domestic Bank (the “Bank Cash”) to and from Domestic Bank's ATMs. ( See Am. Compl. ¶¶ 19–20; Courier Agreement, Ex. B to id.) Under the terms of the Courier Agreement, NECD and IMS were responsible for loss to Domestic Bank resulting from any malfeasance on the part of NECD's or IMS's employees:

Except in respect to shortages of Bank's currency which are determined to be the result of ATM hardware or software malfunction, Couriers shall be responsible for any shortage or loss of Bank's currency, resulting from embezzlement or theft by any third party or employee or agent of Couriers, from any act of God or insured peril, from any terrorist act, from any mysterious unexplained disappearance or from any other cause, whether known or unknown; and Couriers shall reimburse Bank for any such shortage or loss. Such reimbursement shall be made forthwith upon notice by Bank to Couriers of any such shortage or loss.

(Courier Agreement ¶ 3.) Thus, as a part of the Courier Agreement, NECD and IMS were required to maintain insurance for the services they provided to Domestic Bank:

At all times while Couriers are providing services to Bank as herein set forth, Couriers shall maintain insurance with coverage in amounts and with deductibles as are set forth in the schedule of insurance which is Exhibit A attached hereto and made a part hereof or with such other carriers, with such higher amounts of coverage and/or such other deductibles as Bank may require from time to time hereafter. In all such insurance, Bank will be named as loss payee. Each insurance policy shall require not less than 30 days advance notice to Bank of cancellation of the policy and, if available to Couriers, with not less than 30 days advance notice of non-renewal of such policy. The term non-renewal shall include non-renewal by Couriers as well as by the insurance carrier. The insurance carrier or Couriers' agent shall provide to Bank each year a certificate evidencing the existence of such insurance forthwith upon renewal thereof.

( Id. ¶ 2; see also Am. Compl. ¶¶ 21–24.)

B. The Courier Risks Policy

In February 2006, NECD purchased an insurance policy underwritten by Defendants, insuring NECD for certain courier risks (the “Courier Risks Policy”). ( See Am. Compl. ¶¶ 26–29; Courier Risks Policy, Ex. C to Am. Compl.) This policy included coverage for the embezzlement of funds by NECD employees:

Notwithstanding any thing [sic] herein contained to the contrary, it is noted and agreed that: The Insured property is also covered against loss caused by dishonesty and/or embezzlement committed by any employees of the Assured provided that such losses are discovered within 30 (thirty) days of their occurrence ...

(Courier Risks Policy; see also Am. Compl. ¶ 29.) In April 2006, a Loss Payment Rider was added to the Courier Risks Policy, which identified Domestic Bank as a potential designated loss payee:

In the event that the insured is entitled to any payment under this policy, it is agreed that the insured may designate, in writing, a customer to whom the payment or any part thereof shall be made. It is further understood and agreed that insured's designee has no rights under the contract of insurance. The only right conferred is the right to receive direct payment in accordance with this rider but in no event shall payments made under this policy exceed the applicable coverage limit.

(Loss Payment Rider, Ex. D to Am. Compl.; see also Am. Compl. ¶ 30.) A Cancellation Clause was also added, stating: “It is understood and agreed that this policy may be cancelled by either side subject to 30 days['] notice in writing to Domestic Bank.” (Cancellation Clause, Ex. E to Am. Compl.; see also Am. Compl. ¶ 31.) In July 2006, an Armored Car Cargo Liability Policy endorsement was also included as a part of the Courier Risks Policy. ( See Armored Car Cargo Liability Policy, Ex. F to Am. Compl.; see also Am. Compl. ¶ ¶ 32–34.)

On September 26, 2006, Domestic Bank contacted the overseas broker for Defendants requesting additional clarification regarding NECD's coverage under the Courier Liability Policy. ( See Am. Compl. ¶ 35–37; Ex. G to id.) Specifically, Domestic Bank inquired as to the nature of the coverage for losses arising from employee malfeasance:

The policy specifically states that there is coverage for acts or omissions of the insured or any of its employees. Thus, I would assume that there is coverage under this policy for theft of Domestic Bank's money by an employee of NEC[D] and the condition of 30 days' notice is not applicable in this policy.

(Ex. G. to Am. Compl.; see also Am. Compl. ¶ 35.) On October 9, 2006, Defendants' agent replied that Domestic Bank's understanding was “basically ... correct” but that further clarification and simplification was needed. ( See Am. Compl. ¶¶ 37–39; Ex. H to id.) In light of the response that further clarification was needed, Domestic Bank requested a response to its outstanding questions, but no further communication regarding Domestic Bank's interpretation of the policy was received. ( See Am. Compl. ¶ 40; Ex. G to Am. Compl.) NECD renewed the Courier Risks Policy every year from 2006 to 2010, and continued to name Domestic Bank as the only designated customer in the Loss Payment Rider. ( See Am. Compl. ¶ 41; Exs. J, K, L, and M to id.)

C. The Bank Loss

On February 9, 2010, Domestic Bank became aware that the government was investigating the alleged theft and conversion of Bank Cash from the ATMs serviced by NECD and IMS. ( See Am. Compl. ¶ 42.) Domestic Bank demanded an accounting of Bank Cash from NECD in light of this investigation, but on February 23, 2010, the CEO of NECD and IMS, Joseph Sarlo, confessed to Domestic Bank that a proper accounting could not be supplied, and that he was aware of a shortage of Bank Cash totaling at least $1 million. ( See id. ¶ 43.) Prior to this confession, neither NECD nor IMS had disclosed any potential shortage of Bank Cash, and Domestic Bank had no reason to suspect that any of its funds were unaccounted for. ( See id. ¶ 44.) Upon this revelation, Domestic Bank conducted its own investigation and audit of the ATMs serviced by NECD and determined that there was a shortage of Bank Cash in excess of $5 million. ( See id. ¶ 46.) This shortage resulted from a scheme to defraud Domestic Bank perpetrated by the employees of NECD and IMS between 2006 and 2010. ( See id. ¶ 47.)

On March 31, 2010, Domestic Bank made written demand on NECD and IMS for immediate reimbursement of the missing Bank Cash, but Domestic Bank has yet to receive any compensation for its loss resulting from this scheme. ( See id. ¶¶ 47–48.) A copy of this demand was forwarded to Defendants, and was the first notice Defendants received of the loss. ( See id. ¶ 49.) On August 31, 2010, Defendants issued a Reservation of Rights letter regarding Domestic Bank's claim against the Courier Risks Policy ( see id. ¶ 40; Ex. O to id.), and on November 29, 2010, Defendants rescinded the Courier Risks Policy ab initio as a result of misstatements made by NECD in procuring the policy ( see id. ¶ 51; Ex. P to id.). To date, neither Domestic Bank nor Plaintiff has received any payment pursuant to the policies, nor has the refund of any premiums been made to Domestic Bank or Plaintiff. ( See Am. Compl. ¶ 52.)

II. Legal Standard

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a court may dismiss a complaint for “failure to state a claim upon which...