National Cas. Co. v. Vigilant Ins. Co.

• Decision Date: 21 December 2006
• Docket Number: No. 06 Civ. 784(RJH).,06 Civ. 784(RJH).
• Citation: 466 F.Supp.2d 533
• Parties: NATIONAL CASUALTY COMPANY, Plaintiff, v. VIGILANT INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

466 F.Supp.2d 533

NATIONAL CASUALTY COMPANY, Plaintiff, v. VIGILANT INSURANCE COMPANY, Defendant.

No. 06 Civ. 784(RJH).

United States District Court, S.D. New York.

December 21, 2006.

COPYRIGHT MATERIAL OMITTED

Delight Dorothea Wilson, Edward G. Spacek, Kissel & Pesce, LLP, Tarrytown, NY, for Plaintiff.

Robin Cottrell Tarr, DLA Piper Rudnick Gray Cary U.S. LLP, New York, NY, for Defendant.

MEMORANDUM OPINION AND ORDER

HOLWELL, District Judge.

Defendant Vigilant Insurance Company ("Vigilant") brings this motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the amended "complaint filed by plaintiff National Casualty Company ("National") in its entirety. In its amended complaint, National alleges five separate causes of action: contribution, subrogation, breach of contract, unjust enrichment, and breach of agreement. For the reasons stated below, this Court grants Vigilant's motion in part and denies it in part.

BACKGROUND

This dispute relates to the relative obligations of plaintiff National and defendant Vigilant under separate insurance policies with Source Enterprises, Inc. ("The Source") to provide a defense or pay defense costs to The Source and two of its officers in connection with a copyright action. On December 15, 2003, Shady Records, Inc. sued The Source, David Mays and Raymond Scott in an action captioned Shady Records, Inc. v. Source Enterprises., Inc., No. 03 Civ. 9944(GEL) (S.D.N.Y.) (the "Shady litigation"). Shady Records alleged that defendants violated federal copyright law and sought injunctive and monetary relief. (Am.Compl.Ex. C.) As an alternative to the copyright claims, plaintiff also alleged that defendants were unjustly enriched at its expense. (Id.) The action terminated with the dismissal of all of Shady Records' claims against the Source with prejudice in March 2005, with no damages having been paid. Shady Records, Inc. v. Source Enters., Inc., 371 F.Supp.2d 394, 395 (S.D.N.Y.2005).

Both parties to this action had insurance policies to provide a defense to The Source, David Mays, and Raymond Scott (the "insureds"). National's policy, issued on January 15, 2003, covered, inter alia, publishing and advertising liability. (Am. Compl.Ex. A.) The policy provided that the insureds would employ counsel, approved by National, for which they would be reimbursed. Pursuant to this policy, The Source retained Thelen, Reid & Priest, L.L.P. ("Thelen Reid") to defend it and its officers in the Shady litigation and National paid $1,159,113.02 in fees and expenses for this defense. (Am.Compl.¶¶ 24-25.) Vigilant's policy, issued on May 1, 2003, covered directors' and officers' liability and provided that Vigilant would defend and retain counsel for defense of its insureds. (Am.Compl.Ex. B.) While The Source was also a named insured, the Vigilant policy contained an exclusion that denied coverage for "any Insured Organization Claim ... based upon, arising from, or in consequence of any actual or alleged infringement of copyright." (Id., Directors & Officers Liability Coverage, III(D)(7).) Based on this clause, Vigilant declined to defend The Source in the Shady litigation. However, Vigilant maintains that it provided for the defense of Mays and Scott by retaining The McMillan Firm.¹ (Mem. of Law in Opp. 4.)

Arguing that it paid more than its share of the defense costs, National wrote to Vigilant seeking contribution for the amount it paid to defend the insureds. With respect to defense of The Source, National claimed that Vigilant improperly refused to provide any defense. With respect to the defense of Mays and Scott, National claimed that Vigilant had not contributed a sufficient amount to the defense costs. After Vigilant repeatedly refused to contribute, National brought this action on February 2, 2006. (Am.Compl.¶¶ 30-35.) National's amended complaint contains five separate causes of action: (1) breach of contract as a third-party beneficiary; (2) subrogation; (3) breach of oral agreement; (4) unjust enrichment; and (5) contribution. On June 8, 2006, Vigilant moved to dismiss the amended complaint in its entirety pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

STANDARD OF REVIEW

In a motion to dismiss under Rule 12(b)(6), the Court "must accept as true the factual allegations in the complaint, and draw all reasonable inferences in favor of the plaintiff." Bolt Elec., Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir.1995) (citations omitted). "The district court should grant such a motion only if, after viewing plaintiffs allegations in this favorable light, it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Harris v. City of New York, 186 F.3d 243, 247 (2d Cir.1999); accord Sweet v. Sheahan, 235 F.3d 80, 83 (2d Cir.2000). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir.1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)). In other words, "the office of a motion to dismiss is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 176 (2d Cir.2004) (quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir.1980)).

While a Court ruling on a motion to dismiss is normally confined to the complaint, it may also consider "any documents that are either incorporated into the complaint by reference or attached to the complaint as exhibits." Blue Tree Hotels Inv. (Can.), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir.2004) (citing Taylor v. Vt. Dep't of Educ., 313 F.3d 768, 776 (2d Cir.2002)). The Court may therefore consider the insurance policies, issued by National and Vigilant, and the amended complaint in the Shady litigation, as these document are attached to National's amended complaint.

DISCUSSION

Vigilant's Rule 12(b)(6) motion is premised on the contentions that (1) it was not obligated to provide a defense to The Source and (2) it fully met its obligations to provide for the defense of Mays and Scott. The Court addresses each issue in turn, finding that Vigilant was contractually obligated to defend The Source and, further, that whether Vigilant fully met its obligations to provide a defense of Mays and Scott raises questions of fact not appropriately addressed in a motion to dismiss.

1. Did Vigilant Have a Legal Duty to Defend the Source?

Vigilant argues that the terms of its policy plainly exclude The Source from coverage in the Shady litigation and it therefore had no duty to indemnify or defend.² (Mem. of Law in Opp. 4.) National contends that Vigilant improperly denied coverage to The Source, arguing that the Shady litigation involved a claim for unjust enrichment not excluded from Vigilant's policy, thus requiring Vigilant to defend the entire action. In a diversity action such as this one, a court must apply the substantive law of New York State. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Under New York state law, the scope of the duty to- defend is a question for the court, upon reviewing the terms of the policy and the underlying complaint. See Technicon Elecs. Corp. v. Am. Home Assurance Co., 74 N.Y.2d 66, 544 N.Y.S.2d 531, 542 N.E.2d 1048, 1050 (N.Y.1989). In the present case, neither party suggests that there are additional facts relevant to determination of the duty to defend. Therefore, the Court will endeavor to determine, as a matter of law at this stage of the proceeding, whether Vigilant had a duty to defend The Source in the Shady litigation.

Vigilant bears a heavy burden in seeking to avoid its duty to defend the insureds. To successfully do so under New York law, an insurer must demonstrate "that the allegations of the [underlying] complaint cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify under any policy provision." Frontier Insulation Contractors v. Merchs. Mut. Ins. Co., 91 N.Y.2d 169, 667 N.Y.S.2d 982, 690 N.E.2d 866, 868-69 (N.Y.1997) (citing Cont'l Cas. Co. v. Rapid-Am. Corp., 80 N.Y.2d 640, 593 N.Y.S.2d 966, 609 N.E.2d 506, 512 (N.Y.1993)); see also City of Johnstown, N.Y. v. Bankers Standard Ins. Co., 877 F.2d 1146, 1149 (2d Cir.1989) ("A court applying New York law ... should only excuse an insurer from its duty to defend if it can be concluded as a matter of law that there is no possible factual or legal basis on which the insurer might eventually be held to indemnify the insured." (citing Villa Charlotte Bronte, Inc. v. Commercial Union Ins. Co., 64 N.Y.2d 846, 487 N.Y.S.2d 314, 476 N.E.2d 640, 641 (N.Y.1985))); Frontier Insulation, 667 N.Y.S.2d 982, 690 N.E.2d at 869 ("If any of the claims against the insured arguably arise from covered events, the insurer is required to defend the entire action." (citing Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 486 N.Y.S.2d 873, 476 N.E.2d 272, 275 (N.Y.1984))); Ruder & Finn, Inc. v. Seaboard Sur. Co., 52 N.Y.2d 663, 439 N.Y.S2d 858, 422 N.E.2d 518, 521 (N.Y. 1981) ("The duty to defend ... includes the defense of those actions in which alternative grounds are asserted, even if some are without the protection purchased." (citing Int'l Paper Co. v. Cont'l Cas. Co., 35 N.Y.2d 322, 361 N.Y.S.2d 873, 320 N.E.2d 619, 621 (N.Y.1974))).

Therefore, if any of the claims asserted in the Shady litigation even arguably fall outside the policy exclusion relied on by Vigilant, Vigilant had a duty to defend The Source in the entire action. Vigilant's policy excludes any claims ...