Atos Syntel Inc. v. Ironshore Indem.

MEMORANDUM OPINION AND ORDER

JOHN G. KOELTL, District Judge:

The plaintiffs, Atos Syntel Inc., Syntel Holding (Mauritius) Ltd., and Syntel LLC (collectively, "Syntel"}, brought this action against the defendant, Ironshore Indemnity Inc. ("Ironshore"), for declaratory judgment and breach of contract in connection with an insurance coverage dispute. The defendant now moves to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the defendant's motion to dismiss is denied.

I.

The following facts are taken from the complaint and the documents referenced and relied on in the complaint, and are accepted as true for the purposes of this motion.

Syntel is a provider of information technology services. Compl. ¶ 12, ECF No. I.^[1] To cover the period of October 8, 2014, through October 8, 2015, Syntel purchased Errors & Omissions ("E&O") insurance in the amount of $25 million. Id. ¶ 13. Continental Casualty Company ("CNA") provided the first $10 million in coverage under a primary claims-made policy (the "CNA Policy"). Id. ¶ 14. As relevant here, the CNA Policy protected against "Technology and Professional Liability," including the costs of liability and defense arising from alleged "wrongful acts" committed while providing "Information Technology Services." Id. ¶15. "Information Technology Services" was defined to include, among other things, "designing, developing, programming, writing, testing, installing, servicing, supporting, maintaining, repairing and updating software, including any modification and reengineering and providing training, updates and support." Id.; Def.'s Mot. to Dismiss Ex. 2, at 14, ECF No. 25-3 ("CNA Contract"). With respect to such liability coverage, "wrongful act" was defined as "any actual or alleged act, error or omission" that was "committed solely in the conduct of Professional Services or Technology Services for others" or "resulting in the failure of the Insured's Technology

Products to perform the function or serve the purpose intended." CNA Contract at 15.

In addition to the foregoing, the CNA Policy protected against "Media Liability." Id. at 5. As to Media Liability only, "wrongful act" included common law torts, including "infringement of copyright or any . . . misappropriation of ideas under implied contract or other misappropriation of property rights, ideas or information." Id. at 15-16.

The CNA Policy also included several exclusions from coverage, id. at 16-20, and provided that, in the event that more than one coverage category applied, the "maximum total retention amount applicable [would] be the highest of such applicable [amounts]," id. at 22.

The next $10 million in coverage that Syntel purchased was issued in Michigan by the defendant, Ironshore, under a first-layer excess policy (the "Ironshore Policy"). Compl. ¶ 16. The Ironshore Policy expressly provided that it would mirror the terms (that is, "follow the form") of the CNA Policy with one relevant exception: it included a "Non-Follow Form Endorsement" providing that it would "not follow the form of [the] Media Coverage [section]." Def.'s Mot. to Dismiss Ex. 1, at 8, ECF No. 25-2 ("Ironshore Contract"). Accordingly, Ironshore was not "obligated to pay any loss arising from a wrongful act or related wrongful acts as may be insured by reason of" that

section. Id. "Related wrongful acts" were defined, as per the underlying CNA Contract, as all wrongful acts "that are logically or causally connected by any common fact, circumstance, situation, transaction, event, advice or decision." CNA Contract at 13. "All other terms, conditions and exclusions remain[ed] unchanged." Ironshore Contract at 8.

On January 12, 2015, Syntel filed a lawsuit against The TriZetto Group ("TriZetto"). Compl. ¶ 20. In response, TriZetto asserted counterclaims against Syntel for misappropriation of trade secrets under New York law, misappropriation of trade secrets under the federal Defend Trade Secrets Act, and copyright infringement under federal law. Id. ¶¶ 21, 24; Compl. Ex. 2.^[2] Syntel duly notified its insurance providers of the litigation. Compl. ¶¶ 26, 28.

In October 2020, CNA informed Syntel that its $10 million limit would soon be exhausted through payment of defense costs in the TriZetto lawsuit. Id. ¶ 30. In November 2020, that limit was reached. Id. Syntel then notified Ironshore and requested that it "commence paying Syntel's costs of defense and agree to pay any damages or settlement in the TriZetto [l]awsuit, up to the limits of Ironshore''s policy." Id. ¶ 31. However, Ironshore

denied any obligation to provide coverage. Id. ¶ 32. Among other things, Ironshore contended that, because its policy did not include the provision for Media Liability, coverage was barred. Id. Syntel then filed this lawsuit against Ironshore on February 22, 2021. ECF No. 1. On May 18, 2021, final judgment against Syntel was entered in the TriZetto litigation. Syntel Sterling Best Shores Mauritius Ltd. v. The Trizetto Grp., Inc., No. 15-cv-211, ECF No. 994 (S.D.N.Y. May 18, 2021).

Ironshore now moves to dismiss Syntel's claims on the grounds that the Ironshore Policy did not protect Syntel from TriZetto's claims, and therefore Syntel cannot plead an actionable claim for insurance coverage. ECF No. 25-9.

II.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v.- Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985}. The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550

U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Xqbal, 556 U.S. 662, 678 (2009) .

When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiffs possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002).

III.

A.

A threshold question is which state's law governs this motion. A court sitting in diversity must look to the choice of law rules of the forum state. Int'l Bus. Machs. Corp. v. Liberty Mut. Ins. Co., 363 F.3d 137, 143 (2d Cir. 2004). Under New York law, courts need not undertake a choice of law analysis unless there is a conflict between the applicable laws of the relevant jurisdictions, and in the absence of a conflict, a court may apply the substantive law of the forum. Id. An actual conflict of law exists if "the applicable law from each jurisdiction provides different substantive rules," Curley v. AMR Corp., 153

F.3d 5, 12 (2d Cir. 1998), and the differences "have a significant possible effect on the outcome of the trial." Fin. One Pub. Co. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 331 (2d Cir. 2005). If the court finds a conflict, the New York choice of law analysis in a contract dispute focuses on the "center of gravity or grouping of contacts." Feldxttan Law Grp. P.C. v. Liberty Mut. Ins. Co., 819 F.Supp.2d 247, 255 (S.D.N.Y. 2011).

In this case, the defendant claims that Michigan law should apply because Ironshore issued the policy to the plaintiff in Michigan, and the parties allegedly "contemplated" that Michigan law would apply to any resulting dispute between the parties. The plaintiffs, for their part, argue that there is no conflict, and that New York law thus applies.

The plaintiffs are correct: there is no relevant conflict between Michigan and New York law with respect to the insurance coverage dispute at issue on this motion. Under New York law, an insurance contract is interpreted to "give effect to the intent of the parties as expressed in the clear language of the contract, . . . giv[ing] unambiguous provisions of an insurance contract their plain and ordinary meaning." Fed. Ins. Co. v. Am. Home Assurance Co., 639 F.3d 557, 567 (2d Cir. 2011). "Language in an insurance contract will be deemed ambiguous if reasonable minds could differ as to its meaning." Haber v. St. Paul

Guardian Ins. Co., 137 F.3d 691, 695 (2d Cir. 1998); see also Olin Corp. v. Am. Home Assurance Co., 704 F.3d 89, 99 (2d Cir. 2012}. So, too, under Michigan law. Courts applying Michigan law "interpret an insurance contract similarly to any other contract, . . . look[ing] to the plain language of the insurance policy," Busch v. Holmes, 662 N.W.2d 64, 67 (Mich. Ct. App. 2003), and find an insurance contract ambiguous "when its provisions are capable of conflicting interpretations." Klapp v. United Ins. Grp. Agency, Inc., 663 N.W.2d 447, 453 (Mich. 2003). And, notably, under the laws of both states, the meaning of an ambiguous contract is generally a question of fact, see, e.g., id. at 453-54 (applying Michigan law); State v. Home Indem. Co., 486...