U.S. Fidelity and Guar. Co. v. Frosty Bites, Inc.

• Decision Date: 16 July 2004
• Docket Number: No. 02 Civ. 1682(WCC).,02 Civ. 1682(WCC).
• Citation: 325 F.Supp.2d 390
• Parties: UNITED STATES FIDELITY AND GUARANTY COMPANY, Plaintiff, v. FROSTY BITES, INC., Defendant. Frosty Bites, Inc. and Nicholas Angus, Counter-Plaintiffs, v. United States Fidelity and Guaranty Company, Counter-Defendant.
• Court: U.S. District Court — Southern District of New York

325 F.Supp.2d 390

UNITED STATES FIDELITY AND GUARANTY COMPANY, Plaintiff, v. FROSTY BITES, INC., Defendant.

Frosty Bites, Inc. and Nicholas Angus, Counter-Plaintiffs, v. United States Fidelity and Guaranty Company, Counter-Defendant.

No. 02 Civ. 1682(WCC).

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

July 16, 2004.

Kenney, Shelton, Liptak & Nowak, LLP, Buffalo, NY, Judith Treger Shelton, Sharon Angelino, Of Counsel, Attorneys for Plaintiff/Counter-Defendant.

Pino & Associates, LLP, White Plains, NY, Joanna Roberto, Of Counsel, Attorneys for Defendant/Counter-Plaintiff Frosty Bites, Inc. and Counter-Plaintiff Nicholas Angus.

OPINION AND ORDER

WILLIAM C. CONNER, Senior District Judge.

In this latest chapter of the Frosty Bites case, an insurance coverage dispute that threatens to forever quell this Court's appetite for frozen desserts, plaintiff United States Fidelity and Guaranty Company ("USF & G") seeks a judgment declaring that it has no duty to defend or indemnify defendant and counter-plaintiff Nicholas Angus ("Angus") against various intellectual property claims asserted against him in an action now pending in the United States District Court for the Northern District of Georgia (the "underlying action").¹ USF & G also seeks declarations stating that: (1) it is entitled to rescind the insurance contract based on defendants', including Angus's, material misrepresentations and failure to disclose material facts; and (2) coverage has been vitiated because defendants, including Angus, failed to provide timely notice of claim as required by the insurance policy (collectively the "contract defenses"). Angus has intervened and brought as counter-plaintiff a breach of contract action for attorney's fees and costs incurred in both the present case and the underlying action as a result of USF & G's failure to defend him. Both USF & G and Angus now move for summary judgment pursuant to Fed. R. Civ. P. 56 on the duty-to-defend issue. Angus also moves for summary judgment dismissing USF & G's contract defenses. For the reasons set forth herein, we grant Angus's motion for partial summary judgment declaring that USF & G is required to defend it in the underlying action and deny as moot USF & G's motion for partial summary judgment. We deny without prejudice Angus's motion for partial summary judgment dismissing USF & G's contract defenses.

BACKGROUND

Unless otherwise noted, the following facts and procedural history are undisputed. Frosty Bites, Inc. ("FBI") is a business that was incorporated on January 11, 2000, to manufacture a cryogenically frozen ice cream product consisting of a free-flowing mixture of beads and irregularly shaped particles. (Angus Rule 56.1 Stmt. ¶ 4.) Angus was president and chief executive officer of FBI from January 11, 2000 until approximately February 26, 2003. (Id. ¶¶ 5-6.) USF & G issued to FBI a commercial general liability insurance policy, No. BFS00000576041 (the "Policy"), effective from March 3, 2000 until March 3, 2001. (Id. ¶ 8.) The Policy also covered FBI's "executive officers" and directors, and provided in relevant part that: "Your `executive officers' and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as shareholders." (Pl. Rule 56.1 Stmt. ¶ 4 (emphasis added).) It is uncontested that Angus, as FBI's president during the term of the Policy, qualifies as a covered director or officer. (Angus Rule 56.1 Stmt. ¶¶ 11-12.)

The underlying action was brought by Dippin' Dots, Inc. ("Dippin' Dots") and Curt D. Jones against numerous individual and corporate defendants, including Angus and FBI, for patent and trademark violations in the manufacture and sale of free-flowing beaded ice cream. (2d Am. Complt. ¶¶ 1-6, provided as Angelino Aff., Ex. A.) In the second amended complaint in the underlying action (the "underlying complaint"), Dippin' Dots included Angus with a group of defendants referred to as the "Mosey defendants" and also described him individually as the "Vice President of Dots of Fun and International Laser Expressions, Inc., managing director, owner and controller of Dots of Fun, Ltd., and President of Frosty Bites, Inc." (Id. ¶ 4.) Dippin' Dots alleged that the Mosey defendants committed patent infringement, trademark infringement, false designation of origin, and violations of relevant state common and statutory law. (Id. ¶¶ 17-50.) FBI was, however, accused only of patent infringement. (Id. ¶¶ 25-30.) The allegedly infringing products were marketed and sold starting in April 1996; the pleading alleges no concluding date. (Id. ¶ 12.) FBI tendered the underlying complaint to USF & G for defense and indemnification.² In May 2001, USF & G sent to FBI a letter disclaiming coverage and denying any duty to defend or indemnify both FBI and Angus. (Angelino Aff., Ex. J.)

In June 2001, USF & G brought this declaratory judgment action against FBI in New York Supreme Court, Westchester County, seeking a declaratory judgment stating that: (1) USF & G is entitled to rescission of the insurance policy based on material misrepresentations and failure to disclose facts material to USF & G's assessment of the underwriting risk; (2) coverage has been vitiated by FBI's failure to provide USF & G with timely notice of the claims against it; and (3) USF & G is not obligated to defend or indemnify FBI in the underlying action. Thereafter, the parties stipulated to the discontinuance of the action with prejudice as to other Frosty Bites entities that USF & G had named as defendants (Angelino Aff., Ex. E),³ and FBI removed the declaratory judgment action to this Court in March 2002. (Angelino Aff., Ex. F.)

Subsequently, USF & G moved for partial summary judgment and on November 1, 2002, this Court entered an Opinion and Order (hereinafter "Frosty Bites I"),⁴ subsequently summarily affirmed by the Second Circuit, declaring that USF & G has no duty to defend or indemnify FBI against the patent infringement claim because: (1) it was not covered by the general insurance policy as an "advertisement injury"; and (2) there was no duty to defend or indemnify FBI arising out of the other claims because those claims were not asserted against FBI. U.S. Fid. & Guar. Co. v. Frosty Bites, Inc., 232 F.Supp.2d 101, 106 (S.D.N.Y.2002) (Conner, J.), aff'd without opinion, 80 Fed.Appx. 152 (2d Cir.2003). While that motion was pending before this Court, Angus intervened in the declaratory judgment action and also asserted a counterclaim alleging that USF & G had breached the insurance contract by declining its duty to defend or indemnify him and FBI in the underlying action. (Angelino Aff., Ex. G.) Thereafter, USF & G and Angus filed the motions for summary judgment that are presently before this Court.

DISCUSSION

I. Standard of Review

Under Fed. R. Civ. P. 56, summary judgment may be granted where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c). The burden rests on the movant to demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine factual issue exists if there is sufficient evidence favoring the nonmovant for a reasonable jury to return a verdict in his favor. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In deciding whether summary judgment is appropriate, the court resolves all ambiguities and draws all permissible factual inferences against the movant. See id. at 255, 106 S.Ct. 2505. To defeat summary judgment, the nonmovant must go beyond the pleadings and "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The court's role at this stage of the litigation is not to decide issues of material fact, but to discern whether any exist. See Gallo v. Prudential Residential Servs., L.P., 22 F.3d 1219, 1224 (2d Cir.1994).

II. Coverage Issue

USF & G contends that it has no duty under the Policy to defend Angus because: (1) he is described in the underlying complaint as a "Mosey" defendant and not as a "Frosty Bites Distribution" defendant; (2) the factual allegations in the underlying complaint refer to activities that FBI could not have participated in and therefore do not relate to Angus's FBI responsibilities; and (3) this Court's prior rulings reflect the fact that Angus was not sued in his capacity as president of FBI. (Pl. Mem. Supp. Summ. J. at 4-10.) Angus argues in response that this Court's prior rulings are not preclusive because it does not matter whether he was sued in his official or individual capacity as the allegations pled against him arose in connection with his FBI duties. (Angus Mem. Opp. Summ. J. at 2-5.)

The basic principles governing an insurer's duty under New York law to defend its insureds are not in dispute. The duty to defend "is distinct from, and far broader than, [the] duty to indemnify." Atl. Mut. Ins. Co. v. Terk Tech. Corp., 309 A.D.2d 22, 29, 763 N.Y.S.2d 56 (1st Dep't 2003). "It is well established that a liability insurer has a duty to defend its insured in a pending lawsuit if the pleadings allege a covered occurrence, even though facts outside the four corners of those pleadings indicate that the claim may be meritless or not covered." Fitzpatrick v. Am. Honda Motor Co., 78 N.Y.2d 61, 62, 575 N.E.2d 90, 571 N.Y.S.2d 672 (1991). Thus, "an insurer may be contractually bound to defend even though it may not ultimately be bound to pay, either because its insured is not factually or legally liable or because the occurrence is later proven to be outside the policy's coverage." Id. at 65, 571 N.Y.S.2d 672, 575 N.E.2d 90. Although "an insurer's duty to defend is called into play...