Alticor Global Holdings, Inc. v. Am. Int'l Specialty Lines Ins. Co.

584 F.Supp.3d 453

ALTICOR GLOBAL HOLDINGS, INC., Amway Corp., Alticor, Inc., and Amway International, Inc., Plaintiffs/Counter-Defendants,

v.AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY (n/k/a AIG Specialty Insurance Company), Defendants, andNational Union Fire Insurance Company of Pittsburgh, Pa., Defendant/Counter-Plaintiff.

Case No. 1:17-CV-388

United States District Court, W.D. Michigan, Southern Division.

Signed February 7, 2022

James D. Wilson, Wilson Young PLC, Southfield, MI, Edward J. Bardelli, Warner Norcross & Judd LLP, Grand Rapids, MI, for Plaintiffs/Counter-Defendants.

Harvey R. Heller, Julie Chenot Mayer, Steven M. Wolock, Bolton Legal Group, Southfield, MI, Julius Carter, M. Keith Moskowitz, Marilyn Rosen, Dentons US LLP, Chicago, IL, for Defendant American International Specialty Lines Insurance Company.

Charles W. Browning, Josephine Antonia DeLorenzo, Plunkett Cooney, Bloomfield Hills, MI, Daniel I. Graham, Jr., Richard Homer Nicolaides, Jr., Thomas William Arvanitis, Nicolaides Fink Thorpe Michaelides Sullivan LLP, Chicago, IL, for Defendant/Counter-Plaintiff National Union Fire Insurance Company of Pittsburgh, PA.

OPINION AND ORDER

ROBERT J. JONKER, CHIEF UNITED STATES DISTRICT JUDGE

This insurance coverage dispute is before the Court on Phase Two motions for summary judgment or partial summary judgment. Plaintiffs Alticor Global Holdings, Inc., Amway Corp., Alticor, Inc., and Amway International (collectively, "Amway")¹ contend that Defendants American Lines Insurance Company ("AISLIC") and National Union Fire Insurance Company of Pittsburgh, PA ("National Union") breached insurance agreements with Amway by denying coverage to which Amway was entitled under the relevant policies and refusing to provide a defense or to reimburse defense and claim expenses in a lawsuit that ultimately settled. The motions now before the Court build upon the Court's rulings on the parties’ Phase One motions for summary judgment or partial summary judgment (ECF No. 110).

BACKGROUND

A. The 1996 Litigation and 1998 Settlement

The precursor to this case is copyright litigation dating back to 1996 (the "1996 Litigation").² The 1996 Litigation transpired after a group of entertainment companies (the "Record Companies") sued Amway and approximately fifty Amway Independent Business Owners ("IBOs") in the U.S. District Court for the Middle District of Florida for copyright infringement. The parties to the 1996 Litigation eventually settled the dispute under a Settlement and Release Agreement (the "1998 Settlement"). The 1998 Settlement resolved claims for past infringement but did not release Amway or IBOs from potential claims of infringement arising in the future. The 1998 Settlement established a framework for addressing potential future claims, and the U.S. District Court for the Middle District of Florida retained jurisdiction to enforce the 1998 Settlement.

B. The 2012 Letter and Internet Video Claim

Fourteen years later, in November 2012, the Record Companies sent Amway a letter accusing it of infringing hundreds of copyrighted sound recordings (the "2012 Letter").³ In 2013, the Record companies expanded the allegations, ultimately accusing Amway of direct, contributory, or vicarious liability for the infringement of hundreds of sound recordings used in over 1,000 different videos uploaded to Internet sites (the "Internet Video Claim"). The 2012 Letter explicitly invokes the framework for dispute resolution provided in the 1998 Settlement:

This letter constitutes notice pursuant to Paragraph 13.2 of the Settlement and Release Agreement that [the Record Companies] reasonably believe that activities or conduct on the part of Amway Corporation and distributors of Amway products, as well as various individuals and entities associated with them, infringe copyrights and other rights in sound recordings owned or controlled by one or more of [the Record Companies].

(ECF No. 71-9, PageID. 3085) (bold and italics omitted).

C. Amway's Coverage Requests

Amway tendered the 2012 Letter to AISLIC on May 21, 2013. Amway sought coverage from AISLIC under a policy entitled "AIG net Advantage Security – Internet & Network Security Insurance" ("the AISLIC Policy"). AISLIC denied coverage in July 2013 under a series of such policies.⁴ AISLIC detailed multiple reasons for denying coverage, including, without limitation, that (1) coverage does not extend to infringements on websites other than those of Amway and its distributors or licensees; (2) Exclusion J bars coverage for claims, wrongful acts, or loss arising out of the 1996 Litigation; and (3) Exclusion P bars coverage for claims arising out of any circumstance or occurrence if claims could have been reported under a preceding policy. (ECF No. 71-14.) AISLIC reaffirmed the denial of coverage twice more, each time for the same reasons the initial denial provided. (ECF No. 71-15, 16.) AISLIC did not state in any of the notices that it was denying coverage or a defense because the 2012 Letter was not a "suit" that triggered coverage.

Amway sought coverage from National Union for the Internet Video Claim under umbrella policies encompassing policy years 2005-2011. National Union responded with correspondence reserving its rights to deny coverage for multiple reasons under the umbrella policies; identifying coverage exclusions; and requesting more information. Throughout the dispute over the Internet Video Claim, National Union maintained its reservation of rights position without either denying or agreeing to provide coverage. National Union now takes the position that Amway is not entitled to coverage for the Internet Video Claim.

D. Florida Litigation

In April 2014, Amway filed suit against the Record Companies in the United States District Court for the Middle District of Florida, alleging breach of the 1998 Settlement. The following March, the Record Companies filed counter-claims for breach of contract and direct, contributory, and vicarious copyright infringement (the "2015 Counter-claim" or "Counter-claim"). The Record Companies alleged that Amway or its affiliates uploaded to the Internet 1,392 infringing videos from 2006 to 2016. The parties ultimately settled the Florida Litigation, and the case was dismissed with prejudice in January 2017. According to the settlement, Amway paid $7,562,500 to the Record Companies to resolve the Internet Video Claim. Amway incurred $6,653,705.79 in defense costs from November 27, 2012, the date the Record Companies first gave notice, to March 6, 2015, the date the Record Companies filed their counter-claims. Since the filing of the counter-claims, Amway incurred an additional $16,513,882.41 in defense costs. Neither AISLIC nor National Union provided any defense or indemnity for Amway regarding the Internet Video Claim.

E. AISLIC Policy

Amway seeks reimbursement of its defense and indemnity costs under AISLIC's July 2006–July 2007 Policy. Amway purchased annual AISLIC Policies from 2006 to 2016. The AISLIC Policy limits coverage to $25,000,000, inclusive of defense costs, with a $500,000 per claim retention and $750,078 in initial annual premium. The Policy provides "Internet & Network Security Insurance," which includes coverage for "Internet Media Liability." (ECF No. 235-5, PageID.11301.) Under the heading "Internet Media Liability Coverage," the Policy states:

We shall pay on your behalf those amounts, in excess of the applicable Retention , you are legally obligated to pay, including liability assumed under contract , as damages , resulting from any claim(s) made against you for your wrongful act(s) in the display of Internet media . Such wrongful act(s) must occur during the policy period .

(Id. , PageID.11304.) Under "Defense Costs, Charges and Expenses," the AISLIC Policy provides:

We have the right and duty to defend a suit brought against you for covered wrongful acts , even if the suit is groundless or fraudulent and, with your written consent, settle any suit if we believe that it is proper.

....

We shall pay claim expenses you incur with our prior written consent in the defense of a suit for covered wrongful acts. In addition, we may, but are not obligated to, pay claim expenses with respect to a claim that is not a suit....

(Id. , PageID.11364-5.) The AISLIC Policy defines "you," "your," or "insured" as follows:

CCC. You, your or insured means:

(1) the named Insured ;

(2) any subsidiary of the named insured , but only with respect to wrongful acts, extortion claims, failures of security, criminal reward funds, crisis events or loss that occur while it is a subsidiary and is otherwise covered by this policy;

(3) any past, present or future employee of the named insured or subsidiary thereof, but only while acting within the scope of their duties as such;

(4) with respect to coverage A, any agent or independent contractor, including distributors, licensees and sub-licensees, in their provision of material for Internet media on behalf or at the direction of the named insured , but only in the event that a claim has also been brought against an insured as defined in subparagraphs (1) through (3) above, and only while such claim is pending against such insured ;

(5) any leased worker ; and

(6) any entity scheduled by written endorsement to this policy whom the named insured is required by contract to add as an insured under this policy, but only for the wrongful acts of the named insured .

....

(7) any past, present or future officer, director or trustee of the named insured or subsidiary , but only while acting within the scope of their duties as such, and in furtherance of or on behalf of the legal interests of the named insured .

(Id. , PageID.11373-74, 11390.) The Policy also defines "Internet media, "content," "Internet site," and "Your Internet site" as follows:

EE. Internet media means:

(1) content on your Internet site ; or

(2) content created by you that is displayed on an Internet site .

....

MEDIA (a) Content means written, printed,

...