Sea Tow Servs. Int'l, Inc. v. St. Paul Fire & Marine Ins. Co.

• Decision Date: 29 September 2016
• Docket Number: 09-CV-5016 (PKC)(GRB)
• Citation: 211 F.Supp.3d 528
• Parties: SEA TOW SERVICES INTERNATIONAL, INC., Plaintiff, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, a Minnesota Corporation, Defendant.
• Court: U.S. District Court — Eastern District of New York

211 F.Supp.3d 528

SEA TOW SERVICES INTERNATIONAL, INC., Plaintiff,

v.ST. PAUL FIRE & MARINE INSURANCE COMPANY, a Minnesota Corporation, Defendant.

09-CV-5016 (PKC)(GRB)

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

Signed September 29, 2016

Steven Altman, Altman & Company, New York, NY, Bradley R. Slenn, Mitchell A. Stein, Stein Law, P.C., Erik B Zarkowsky, Law Offices of Erik B. Zarkowsky, Northport, NY, for Plaintiff.

Andrew M. Premisler, Courtney Alexandropoulos Lanzalotto, Jeremy M. Sokop, Stephen M. Lazare, Lazare, Potter & Giacovas, L.L.P., New York, NY, for Defendants.

MEMORANDUM & ORDER

PAMELA K. CHEN, United States District Judge:

Sea Tow Services International ("STSI") is a franchise-based marine assistance, towing, and salvage provider with over 90 franchisees nationwide. In March 2007, STSI was sued along with its Miami franchisee, Triplecheck, Inc. ("Triplecheck"), by a Triplecheck employee who sustained severe injuries in a work-related boating accident at Triplecheck's site. At all relevant times, STSI was insured by St. Paul Fire & Marine Insurance Company ("St. Paul"), and Triplecheck was separately insured by a different carrier, RLI Insurance Company ("RLI"). STSI was also covered under Triplecheck's policies with RLI as an "additional insured."

During the underlying personal injury action, St. Paul took the position that RLI's obligation to defend STSI as an "additional insured" under its policies with Triplecheck was primary to St. Paul's own. When RLI disputed this interpretation, however, St. Paul defended STSI with an eye toward later seeking indemnification from RLI for defense and settlement costs. Over STSI's wishes, St. Paul pursued a strategy of unilateral settlement that would release only STSI, instead of a global settlement that would release both STSI and Triplecheck. Before St. Paul could finalize a unilateral settlement, however, STSI went behind its insurer's back and negotiated a global settlement within the combined policy limits available to STSI and Triplecheck. The two insurers paid the settlement amount, and St. Paul subsequently sued and settled with RLI to recover a portion of the settlement and defense costs it incurred in the underlying action.

The instant action followed. Although STSI suffered no out-of-pocket costs in either the underlying personal injury action (which settled within policy limits) or the later coverage dispute between the two insurers (to which STSI was not a party), STSI alleges that St. Paul breached its policy and/or acted in bad faith by taking the settlement and coverage positions it took in the underlying action. STSI additionally asserts causes of action against St. Paul for unfair and deceptive trade practices under New York General Business Law § 349 (Count Two), tortious interference with contracts between STSI and Triplecheck (Count Three), professional malpractice (Count Four), defamation (Count Five), and civil conspiracy (Count Six). St. Paul has moved for summary judgment on all counts. (Dkts. 232, 240.) For the reasons set forth below, the Court GRANTS St. Paul's motion for summary judgment in its entirety and DISMISSES this action.¹

BACKGROUND²

A. THE PARTIES & RELEVANT AGREEMENTS

1. Franchise Agreement Between STSI And Triplecheck

To become a member of the Sea Tow network, a prospective franchisee must sign a Franchise Agreement for a renewable ten-year term, which defines the specific geographic area in which the franchisee is permitted exclusive use of the Sea Tow name and its intellectual properties. (Frohnhoefer Decl. ¶ 9.³ ) Triplecheck executed a Franchise Agreement with STSI on or about June 23, 2003, after which it was permitted to use the name "Sea Tow Miami." (Dkt. 237–1 ("FA").) The relevant Franchise Agreement provisions for purposes of this dispute are:

• Mandatory Insurance : Triplecheck must purchase insurance coverage and designate STSI as an "additional named insured." (FA §§ 9.16, 9.16.1; see also Frohnhoefer Decl. ¶ 11(a).)

• Indemnification of STSI by Triplecheck : Triplecheck must indemnify STSI "from all losses and expenses ... incurred in connection with any action, suit, proceeding, claim, demand, investigation, or formal or informal inquiry ... or any settlement thereof which arises out of or is based upon ... any acts, errors, or omissions of [Triplecheck] or any of his/her agents, servants, employees, contractors, [etc.] ... at the Approved Location [i.e. , Triplecheck's dockage space, see FA § 9.1.2] or in any manner in connection with the Sea Tow Franchised Business." (FA § 12.3; see also Frohnhoefer Decl. ¶ 11(b).)

• Right of STSI to Assume Defense of Triplecheck : "[STSI] may elect to assume (but under no circumstance is obligated to undertake) the defense and/or settlement of any such action, suit, proceeding, claim, demand, inquiry or investigation [arising out of Triplecheck's acts, errors, or omissions], provided that [STSI] will seek the advice and counsel of [Triplecheck] and shall keep [Triplecheck] informed with regard to any such proposed or contemplated settlement(s). Such an undertaking by [STSI] shall in no manner or form diminish [Triplecheck's] obligation to indemnify [STSI] and hold it harmless." (FA § 12.3.1; see also Frohnhoefer Decl. ¶ 11(d).)

• Indemnification of Triplecheck by STSI : STSI must indemnify Triplecheck "from all losses and expenses ... incurred in connection with any action, suit, proceeding, claim demand, investigation, or formal or informal inquiry ... or any settlement thereof which arises out of or is based upon ... any acts, errors or omissions of [STSI] or any of its agents, servants, employees, contractors, [etc.] ... at the Approved Location [i.e. , Triplecheck's dockage space, see FA § 9.1.2]." (FA § 12.4; see also Frohnhoefer Decl. ¶ 11(c).)

2. St. Paul Marine General Liability Policy

At all relevant times, STSI was insured by St. Paul under a Marine General Liability Policy (the "St. Paul MGL Policy"), effective February 25, 2006 to February 25, 2007. (Def.'s 56.1 ¶ 2; Dkt. 237–4 at ECF 40 ("SP MGL").) The St. Paul MGL Policy had limits of $1 million per occurrence, $2 million in the aggregate, and $1 million for defense costs. (Def.'s 56.1 ¶ 2.) Triplecheck was neither a named insured nor an additional insured on the St. Paul MGL Policy. (Id. ¶ 3.) In relevant part, the St. Paul MGL Policy provided:

• Insurer's Duty to Defend : "[St. Paul] will pay on behalf of [STSI] all sums which [STSI] shall become legally obligated to pay as damages because of ... ‘Bodily Injury’ ... to which this insurance applies. [St. Paul] will have the right and duty to defend [STSI] against any claim or ‘suit’ seeking those damages." (SP MGL § II(A)(1).)

• Insurer's Discretion to Settle : St. Paul "may, at [its] discretion, investigate any ‘occurrence’ and settle any claim or ‘suit’ that may result." (SP MGL § II(A)(1).)

• Insured's Duty to Cooperate in Event of Suit : "[STSI] shall cooperate with [St. Paul] and, upon [St. Paul's] request, assist in making settlements, in the conduct of ‘suits' and in enforcing any right of contribution or indemnity against any person or organization who may be liable to [STSI] ... [STSI] shall not, except at [its] own cost, voluntarily make any payment, assume any obligation or incur any expense other than for first-aid to others at the time of the accident." (SP MGL § I(12)(3).)

• Subrogation : "In the event of any payment under this policy, [St. Paul] shall be subrogated to all [of STSI's] right of recovery .... [STSI] shall do nothing after loss to prejudice such rights." (SP MGL § I(15).)

3. RLI Marine General Liability Policy & Protection and Indemnity Policy

At all relevant times, Triplecheck was insured by RLI under two different policies: (1) a Protection and Indemnity Policy (the "RLI P&I Policy"), and (2) a Marine General Liability Policy (the "RLI MGL Policy"). (Def.'s 56.1 ¶ 7.) STSI was designated as an "additional insured" under both. (Id. ) The RLI P&I Policy had a limit of $1 million and was a "wasting" policy, meaning that its $1 million limit would be eroded by defense costs as they was incurred. (Id. ¶ 8.) The RLI MGL Policy, by contrast, had limits of $2 million in the aggregate, and a separate $1 million for legal fees. (Frohnhoefer Decl. ¶ 33.) According to RLI's interpretation in the underlying action, the RLI MGL Policy excludes coverage for Triplecheck where the alleged loss arises out of a Triplecheck-owned vessel and/or involves injury to a Triplecheck employee. (Def.'s 56.1 ¶ 10.)

B. UNDERLYING FERNANDEZ ACTION

1. Original Complaint (Against Triplecheck Only)

In May 2006, Juan Fernandez, a Triplecheck employee, sued Triplecheck in Florida State court ("the Fernandez Action") for injuries he sustained when he was struck in the face by a tow hook while on board a Triplecheck-owned vessel in the course of his employment. (Def.'s 56.1 ¶ 9; Frohnhoefer Decl. ¶ 31.) RLI assumed Triplecheck's defense under the RLI P&I Policy and designated Allan R. Kelley of Fowler, White, Burnett, P.A. to serve as defense counsel for Triplecheck. (Def.'s 56.1 ¶ 10; Frohnhoefer Decl. ¶ 31.)

2. Addition of Vicarious Liability Claim Against STSI

In March 2007, nearly one year after the commencement of the original action, Fernandez named STSI as a defendant in its capacity as Triplecheck's franchisor under a theory of vicarious liability. (Def.'s 56.1 ¶ 11.) Shortly thereafter, RLI confirmed to STSI in-house counsel Mitchell Stein, at Stein's request, that RLI's policies covered STSI as an additional insured; RLI noted it was therefore assigning Kelley to represent STSI as well. (Id. ¶¶ 12, 14.) Thereafter, in a May 10, 2007 letter to RLI, STSI, and Triplecheck, Kelley noted that Fernandez's counsel had raised concerns about a possible conflict of interest with RLI's simultaneous representation of Triplecheck and STSI. (Dkt. 237–11, Pl.'s Ex. 10.) In the same letter, Kelley sought confirmation from STSI and Triplecheck that they did not believe there was any...