Comput. Scis. Corp. v. Endurance Risk Sols. Assurance Co.

MEMORANDUM OPINION AND ORDER ORDER DENYING MOTION TO DISMISS

MARY KAY VYSKOCIL, UNITED STATES DISTRICT JUDGE.

This matter is before the Court on the motion of Defendant insurers Endurance Risk Solutions Assurance Co. ("Endurance"), Homeland Insurance Company of New York ("Homeland"), and Aspen Insurance UK Limited ("Aspen"), collectively (“Defendant Insurers” or “Defendants”) to dismiss Plaintiff, Computer Science Corp's, (“CSC's” of “Plaintiff's”) Complaint. (Defendants' Motion to Dismiss [ECF No. 49]). Plaintiff filed this Complaint on February 21, 2020 and asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing against all Defendants. (Complaint (“Compl.”) [ECF No. 1]). This Court has jurisdiction under 28 U.S.C. § 1332. For the reasons discussed below, Defendant's motion is DENIED.

BACKGROUND

In 2009, CSC and Kemper Corporate Services, Inc. (“Kemper”) entered into a Master Services Agreement to develop a new technological product called Exceed J which was a conversion from Exceed to COBOL to then Java. (Compl. ¶ 74). After a delay of CSC creating a functioning Exceed J product, Kemper filed a Demand for Arbitration for a breach of contract from CSC in 2015. (Compl. ¶ 75). Kemper's main claim was that CSC's lack of development of Exceed J, made the contract unfulfilled. (Compl. ¶ 76). After a ten-day arbitration in 2017, the Arbitrator determined that CSC had breached its contract with Kemper, did not develop Exceed J properly, and awarded Kemper damages in the total amount of $84, 296, 581. (Compl. ¶ 82; Final Award [ECF No. 56-1], at 37, 50).

The arbitrator specifically awarded compensatory and direct damages to Kemper for the entire award. (Compl. ¶ 82; Final Award at 37, 50). The breakdown of the arbitration award is as follows:

(a) compensatory, direct damages equivalent to and measured by the amounts paid by Kemper to CSC ($58, 532, 652); (b) additional direct damages for Kemper's internal salaries costs, and expenses ($25, 763, 929); (c) pre-judgment interest at the statutory rate of 9% per annum starting January 3, 2011 ($50, 227, 916); (d) post-judgment interest at the applicable federal rate ($3, 429, 713.27);9 and (e) Kemper's attorneys' fees, costs and expenses in prosecuting the Action ($7, 176, 095.23)

(Compl. ¶ 93; Final Award at 38-41, 50). The Award specifically states that the $58, 532, 652 amount is awarded “as damages” and that the entirety of the $84, 362, 892 that Kemper requested, was requested in the form of “compensatory damages.” (Final Award at 37-38]. The Award was confirmed in 2017 by the Northern District of Texas and affirmed by the Fifth Circuit in 2020. (Compl. ¶¶ 84-86).

After the award was confirmed, CSC then began trying to activate its extensive insurance policies to cover the Award. (Compl. ¶ 86). Plaintiffs purchased a primary policy from Illinois

Union Insurance Company commonly referred to in their complaint as the “Ace Policy.” (Compl. ¶ 19). CSC had an additional five layers to the insurance tower and these additional layers were to “follow form” to the Ace Policy. (Compl. ¶ 20). Plaintiffs note that in each of the other four-layer insurance policies they “interpret[ed] the same Ace Policy” that Defendants had in their insurance agreement. (Compl. ¶ 98). While each of the other layers provided the full amount of coverage, CSC was told by Defendants that their insurance policies did not cover the entire Award, and would thus, not be paying their $25 million collectively. (Compl. ¶¶ 95 - 103).

The fifth layer of Plaintiff's insurance policy of the 2014-2015 policy was comprised of policies from Endurance, Homeland and Aspen. (Compl. ¶¶ 27-31). Defendants' liability coverage is as follows: Endurance provided $5 million, Homeland $10 million, and Aspen $10 million. (Compl. ¶¶ 27-31). Each of Defendants' insurance policies followed form to the primary Ace Policy. (Compl. ¶¶ 28-30). The policies, attached to Plaintiff's complaint as exhibits B-D, explicitly say that they “followed form” or followed the “Primary Policy.” (Compl. Ex. B at 3, Ex. C at 2, Ex. D at 6). The damages definition of the Ace Policy states:

Damages means all forms of monetary damages, including actual damages, statutory damages, punitive, exemplary, and multiple damages (where insurable), compensatory damages, funds paid into a Consumer Redress Fund, any award of prejudgment or post-judgment interest, and settlements which the Insured becomes legally obligated to pay on account of any Claim first made against any Insured during the Policy Period or, if elected, the Extended Reporting Period, for Wrongful Acts to which this Policy applies.

(Compl. Ex. A at 6). However, the Ace Policy contains the following exclusion for:

[L]oss of fees or profits by the Insured, the return of fees, commissions or royalties by the Insured or re-performance of services by the Insured or under the Insured's supervision; however, compensatory amounts equivalent to fees which are used as a measure of otherwise covered Damages shall not trigger this exclusion.

(Compl. Ex. A at 7).

Defendants argued that a portion of the Award fell into this exclusion. In Defendants' correspondence to Plaintiff, they repeatedly asserted that the type of damages awarded by the Arbitrator were not entirely covered by the insurance policy, despite Plaintiff's original understanding and interpretation of the insurance coverage. (Compl. ¶¶ 95-103).

The parties have attempted to remedy this situation since November 3, 2017. (Compl. ¶ 95). This correspondence continued for a year through December 2018, with no resolution. (Compl. ¶¶ 95-103). At no point did Defendants state to Plaintiff that they would investigate their claims, but maintained their position and re-affirmed that that they would deny coverage for the Kemper claim. (Compl. ¶ 103).

LEGAL STANDARDS

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible on its face “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (alterations, internal quotation marks, and citations omitted).

In ruling on a motion to dismiss, the Court must “accept as true all factual allegations and draw from them all reasonable inferences; but [it is] not required to credit conclusory allegations

or legal conclusions couched as factual allegations.” Hernandez v. United States, 939 F.3d 191, 198 (2d Cir. 2019) (quoting Nielsen v. Rabin, 746 F.3d 58, 62 (2d Cir. 2014)). The Court's role at this stage is “not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient.” Bertuglia v. City of New York, 839 F.Supp.2d 703, 713 (S.D.N.Y. 2012) (quoting Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985)).

ANALYSIS

I. Choice of Law

Federal courts in diversity cases “appl[y] the choice of law rules of the forum state.” AEI Life LLC v. Lincoln Benefit Life Co., 892 F.3d 126, 132 (2d Cir. 2018) (collecting cases). The New York Court of Appeals has held that parties' decision to include a New York choice-of-law clause in a contract “obviates the application of both common-law conflict-of-laws principles and statutory choice-of-law directives, unless the parties expressly indicate otherwise.” Minsters & Missionaries Ben. Bd. v. Snow, 26 N.Y.3d 466, 468, 25 N.Y.S.3d 21, 45 N.E.3d 917 (N.Y. 2015); see also IRB-Brasil Resseguros, S.A. v. Inepar Invs., S.A., 20 N.Y.3d 310, 312, 958 N.Y.S.2d 689, 982 N.E.2d 609 (N.Y. 2012) (“[T]he need for a conflict-of-laws analysis is obviated by the terms of the parties' agreement.”). Accordingly, “when parties include a choice-of-law provision in a contract, . . . the chosen state's substantive law-but not its common-law conflict-of-laws principles or statutory choice-of-law directives-is to be applied.” Minsters, 26 N.Y.3d at 476.

Here, the policies issued by Defendants Homeland and Endurance do not contain choice-of-law provisions. (See Compl. Exs. B-C.) The policy issued by Defendant Aspen, however, contains a New York choice-of-law provision. (See Compl. Ex. D.) Plaintiff nevertheless urges the Court to apply New York choice-of-law rules and apply Virginia law because Virginia has

the most significant contacts with this matter. (Plaintiff's Memorandum of Law in Opposition to Defendants' Motion to Dismiss (Pl. Opp'n) [ECF No. 55], at 11). New York substantive law applies to the Aspen policy given the choice-of-law provision. Applying New York's choice-of-law rules, as Plaintiff urges, “would contravene the primary purpose of including a...