Park Place Entertainment v. Transcontinental Ins., 01 Civ. 6546 (RLC).

• Decision Date: 02 October 2002
• Docket Number: No. 01 Civ. 6546 (RLC).,01 Civ. 6546 (RLC).
• Parties: PARK PLACE ENTERTAINMENT CORPORATION Plaintiff, v. TRANSCONTINENTAL INSURANCE COMPANY; Agricultural Insurance Company; American:National Fire Insurance Company; Athena Assurance Company; Indemnity Insurance Company of North America; Liberty Mutual Insurance Company; Markel American Insurance Company; National Surety Corporation; National Union Fire Insurance Company of Pittsburgh, PA; Ohio Casualty Insurance Company; Westchester Fire Insurance Company; and Westport Insurance Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

225 F.Supp.2d 406

PARK PLACE ENTERTAINMENT CORPORATION Plaintiff, v. TRANSCONTINENTAL INSURANCE COMPANY; Agricultural Insurance Company; American:National Fire Insurance Company; Athena Assurance Company; Indemnity Insurance Company of North America; Liberty Mutual Insurance Company; Markel American Insurance Company; National Surety Corporation; National Union Fire Insurance Company of Pittsburgh, PA; Ohio Casualty Insurance Company; Westchester Fire Insurance Company; and Westport Insurance Corporation, Defendants.

No. 01 Civ. 6546 (RLC).

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

October 2, 2002.

Sills Cummis Radin Tischman, Epstein & Gross, P.C., New York, Kenneth Hayes, Steven S. Radin, Of Counsel, for Plaintiff.

Ford, Marrin, Esposito, Witmeyer & Gleser, L.L.P., New York, Stuart C. Levene, Of Counsel, L'Abbate, Balkan, Colavita & Contini, Garden City, Gary Petropoulos, Of Counsel, Callan, Koster, Brady & Brennan, LLP, New York, Michael Paul Kandler, Of Counsel, Luce Forward Hamilton & Scripps, New York, Ira S. Bergman, Of Counsel, Lustig & Brown, New York, Sheri N. Robinson, Of Counsel, Kaufman, Borgeest & Ryan, New York, Ariel Michael Furman, Of Counsel, Picillo Caruso, Nutley, NJ, Steven A. Weiner, Of Counsel, Caron, Constants & Wilson, Rutherford, NJ, Darrel M. Seife, Of Counsel, Lester, Schwab, Katz & Dwyer, L.L.P., New York, Eric A. Portuguese, Of Counsel, for Defendants.

OPINION

ROBERT L. CARTER, District Judge.

Plaintiff Park Place Entertainment Corporation ("Park Place") commenced this third party action to obtain a judgment declaring that defendant insurers are obligated to defend and indemnify Park Place in three lawsuits. In addition to declaratory relief, Park Place seeks compensatory and punitive damages for breach of contract and bad faith failure to defend and indemnify. Defendants now move for summary judgment pursuant to Rule 56, F.R. Civ. P., claiming that there is no duty to defend or indemnify Park Place because the suits against Park Place fall within exclusions of the policies at issue.

BACKGROUND

Park Place was sued in three underlying actions: President R.C.—St. Regis Management Co. v. Park Place Entertainment Corp. ("President"), Catskill Development, L.L.C. v. Park Place Entertainment Corp. ("Catskill"), and Native American Management Corp. v. Park Place Entertainment Corp. ("NAMC"). Complaints in the three suits asserted that Park Place schemed to gain control of the gaming industry in New York State through a campaign of fraud, intentional tortious interference with contract, bad faith, and defamation. The goal of the alleged scheme was to destroy Park Place's competitors' relationships with Native American tribes and their ability to compete in the New York gaming industry.

Relevant to this case are allegations of defamation in each of the complaints. Specifically, the President complaint alleges in part that Park Place executives, in furtherance of a "fraudulent scheme," "maliciously" disparaged the plaintiffs, and "[t]hese statements were false and defamatory and were knowingly false and defamatory when made." (President Compl. ¶¶ 1, 105, 106.) The Catskill complaint alleges in part that Park Place executives "intentionally and unfairly maligned the reputations and integrity" of the plaintiffs. (Catskill Compl. ¶ 103.) The NAMC complaint alleges in part that Park Place executives made statements about NAMC that were "false and defamatory and knowingly false and defamatory" at a February 15, 2000 meeting. (NAMC Compl. ¶ 194.)

Park Place's primary and umbrella insurance policies, which were issued by Transcontinental Insurance Co.,¹ provide for a defense as well as coverage for "personal and advertising injury" (defined as injury arising out of torts such as false arrest, malicious prosecution, wrongful eviction, invasion of privacy, and most important to this case, "[o]ral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services"). (Levene Aff. Exh. F, Exh. G.) The policies exclude coverage, however, for personal and advertising injury that arises out of "oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity." Id.

Additional excess policies taken out by Park Place provide coverage for loss due to personal injury arising out of defamation, subject to the same exclusions as the underlying umbrella policies. (Am. Compl. ¶ 33.) Two of the excess policies (issued by National Fire Insurance Company and Indemnity Insurance Company of North America) also provide for a defense in the event that underlying Trans-continental policy limits are exhausted.

DISCUSSION

I. Choice of Law

Before considering the merits, the court must decide which state's law governs the interpretation of the policies. Park Place argues that Nevada law governs, while defendant insurers argue that New York law governs.

A federal court sitting in diversity must apply the choice of law rules of the forum state, in this case, New York. Tri-State Employment Servs., Inc. v. Mountbatten Sur. Co., Inc., 295 F.3d 256, 260 (2d Cir.2002) (citing Klaxon Co. v. Stentor Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). The first step in a case presenting a potential choice of law issue is to determine whether there is a true conflict between the laws of the jurisdictions involved. In re Allstate Ins. Co., 81 N.Y.2d 219, 597 N.Y.S.2d 904, 613 N.E.2d 936, 936 (1993). If the party advocating a choice of law analysis fails to demonstrate an actual conflict between New York and another state's laws, no choice of law analysis need be undertaken. Bass v. World Wrestling Fed'n Entm't, Inc., 129 F.Supp.2d 491, 504 (E.D.N.Y.2001) (citing Portanova v. Trump Taj Mahal Assocs., 270 A.D.2d 757, 759-60, 704 N.Y.S.2d 380 leave denied, 95 N.Y.2d 765, 716 N.Y.S.2d 39, 739 N.E.2d 295 (2000)).

There are no Nevada state court cases addressing an insurer's duty to defend. In this situation, the court must act as a New York state court would in predicting how Nevada courts would rule as to the contours of the duty to defend. See Rogers v. Grimaldi, 875 F.2d 994, 1002 (2d Cir.1989). ("This two-step process of divining the law of the foreign state ... appears to be a consequence both of Klaxon and of the fundamental tenet of diversity jurisdiction ... that the federal court is only another court of the State.") (internal quotation and citations omitted). The Second Circuit in Rogers tackled this "uncertain task" by deciding that

New York courts would, as a matter of substantive interpretation, presume that the unsettled common law of another state would resemble New York's but that they would examine the law of the other jurisdiction and that of other states, as well as their own, in making an ultimate determination as to the likely future content of the other jurisdiction's law.

Id. at 1003. Accordingly, in this case the court will presume that Nevada law will resemble New York law, but will also examine the law of Nevada to determine the likely future content of that state's law.

Under New York law, the duty to defend is "exceedingly broad." Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 593 N.Y.S.2d 966, 609 N.E.2d 506, 509 (N.Y.1993). This duty is broader than the insurer's obligation to indemnify. See id. ("An insurer must defend whenever the four corners of the complaint suggest —or the insurer has actual knowledge of facts establishing—a reasonable possibility of coverage.") (citing Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 571 N.Y.S.2d 672, 575 N.E.2d 90, 90 (1991)). The insurer must provide a defense if it has knowledge of facts that potentially bring the claim within the policy's indemnity coverage. Fitzpatrick, 571 N.Y.S.2d 672, 575 N.E.2d at 92.

Nevada law, as predicted by the federal district court sitting in that jurisdiction, is similar to that of New York. See, e.g., Associated Aviation Underwriters, Inc. v. Vegas Jet, L.L.C., 106 F.Supp.2d 1051 (D.Nev.2000); Insurance Co. of N. Am. v. Hilton Hotels U.S.A., Inc., 908 F.Supp. 809 (D.Nev.1995); Rockwood Ins. Co. v. Federated Capital Corp., 694 F.Supp. 772 (D.Nev.1988). Applying Nevada law, the district court has stated that "[t]he authorities unquestionably support the proposition that the duty to defend is much broader than the duty to indemnify." Rockwood, 694 F.Supp. at 776. Pursuant to this duty, an insurer must defend any suit brought against its insured that potentially seeks damages within the coverage of the policy. Id. Further, "[i]f facts are alleged which, if proven, would give rise to the duty to indemnify, then the insurer must defend. It is immaterial whether the claim asserted is false, fraudulent or unprovable. The potentiality of covered liability is the test." Id. (citing Continental Cas. Co. v. City of Richmond, 763 F.2d 1076 (9th Cir.1985)). Hence, it appears likely that Nevada courts would employ a "potentiality" test similar to that used by New York to determine a defense obligation.

Regarding the duty to indemnify, the laws of New York and Nevada also appear similar. Compare Associated Aviation Underwriters, 106 F.Supp.2d at 1053 ("The duty to indemnify ... will arise only in the event of final placement of covered, non-excluded liability upon the insured through judgment or settlement.") with Frontier Insulation Contractors, Inc. v. Merchants Mut. Ins. Co., 91 N.Y.2d 169, 667 N.Y.S.2d 982, 690 N.E.2d 866, 870 (1997) ("the duty to pay is determined by the actual basis for the insured's liability to a third person. Thus, we decline to pass on the question of defendants' duty to indemnify at this early juncture, which predates any ultimate determination of the insurers' liability.") (internal citations omitted).

Because New York law in this area appears similar in all material respects to the law of Nevada as predicted by the federal...