Supima v. Phila. Indem. Ins. Co.

Supima, Plaintiff, v. Philadelphia Indemnity Insurance Company, Defendant.

No. CV-20-00617-PHX-SPL

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

June 16, 2021

ORDER

Before the Court is Plaintiff Supima's Motion for Partial Summary Judgment (Doc. 50), Plaintiff's Separate Statement of Facts in Support of Plaintiff's Motion for Partial Summary Judgement (Doc. 51), Defendant Philadelphia Indemnity Insurance Company ("Philadelphia")'s Motion for Summary Judgment and Response in Opposition to Plaintiff's Motion for Partial Summary Judgment (Doc. 108), and Defendant's Objections to Plaintiff's Separate Statement of Facts in Support of Plaintiff's Motion for Partial Summary Judgement and Defendant's Statement of Material Facts in Support of Its Cross Motion for Summary Judgment. (Doc. 109) The Motions have been fully briefed and are ready for consideration.¹ (Docs. 118, 119, 120, 124) For the following reasons, partial summary judgment will be granted in favor of Defendant.

I. BACKGROUND²

Defendant is an insurance company incorporated in Pennsylvania. (Doc. 1-1 at ¶¶3-4) Plaintiff is an Arizona non-profit corporation. (Doc. 1-1 at ¶2)

Plaintiff was a customer of Defendant from October 2007 to July 2018. (Doc. 51 at ¶1) Plaintiff purchased eleven director's and officer's ("D&O") liability insurance policies from Defendant. (Doc. 51 at ¶¶1, 13) The main policies at issue are Policy No. PHSD783800, with a coverage period from October 6, 2012 to July 1, 2013 and Policy No. PHSD1146497, with a coverage period from July 1, 2016 to July 1, 2017. (Docs. 1-1 at ¶¶7c,7h,18,24; 9 at ¶¶14-15) Plaintiff seeks coverage of costs incurred defending an underlying arbitration.

The parties disagree about when the arbitration began. On May 2, 2013, Tradeline Enterprises Pvt. Ltd. ("Tradeline"), a wholesaler of threads and yarn, sent Plaintiff a letter titled "Demand for Arbitration and Appointment of Arbitrator Under Article XI of Supima License Agreement , License No.: India-58, In the Matter of Tradeline Enterprises Pvt Ltd, et al. v. Supima Association of America" notifying Plaintiff it wanted to arbitrate a dispute pursuant to the licensing agreement between itself and Plaintiff. (Docs. 1-1 at¶34; 108 at 4) The licensing agreement contained an arbitration clause. (Doc. 12-2 at 69) According to Defendant, Plaintiff and Tradeline went back and forth on various issues, including selecting an arbitrator, throughout 2013. (Doc. 109 at 23-24) According to Defendant, Plaintiff incurred "Defense Costs" during this time. (Doc. 109 at 24) According to Plaintiff, it did not incur any such expenses. (Doc. 51 at ¶50) In September of 2016, Tradeline filed a demand for arbitration before the American Arbitration Association ("AAA"). (Docs. 51 at ¶30; 109 at 11) In May 2017, Tradeline filed a Statement of Claim with the AAA's International Centre for Dispute Resolution ("ICDR"), which Plaintiff forwarded to Defendant. (Docs. 51 at ¶¶34-35; 109 at 12) On February 28, 2018, Defendant issued a reservation of rights letter to Plaintiff, reserving its rights "with respect to whether it hadan obligation to advance Defense Costs under the 16-17 Policy." (Docs. 1-1 at ¶31, 109 at 24) On May 4, 2018, Defendant informed Plaintiff it had no obligation to advance the costs for the arbitration under the 2012-13 policy because Plaintiff failed to report the initial "Demand for Arbitration." (Docs. 1-1 at ¶34, 109 at 25) Defendant also told Plaintiff it had no obligation to advance the costs under the 2016-17 policy because Tradeline's Claim was not made during the 2016-17 policy coverage period. (Doc. 109 at 25)

Plaintiff filed a complaint on February 28, 2020 in Maricopa County Superior Court, seeking (1) declaratory judgment against Defendant for the "Defense Costs," and asserting (2) a breach of contract claim, and (3) a breach of the implied covenant of good faith and fair dealing (Doc. 1-2 at ¶¶67-85) Defendant filed an Answer asserting two counterclaims, (1) a declaratory judgment that it has no obligation to pay the "Defense Costs" under the 2012-13 policy and (2) a declaratory judgment that it has no obligation to pay the "Defense Costs" under the 2016-17 policy. (Doc. 9 at ¶¶23-37)

Plaintiff moved for partial summary judgment on Count I of the Complaint and Counts I and II of the Counterclaim. (Doc. 50 at 1) Plaintiff's position is that even if the May 2013 letter constitutes a "Claim" as Defendant asserts, Defendant still must pay all Defense Costs incurred after May 26, 2017 in the Tradeline arbitration, unless Defendant can establish an affirmative defense. (Doc. 50 at 1) Defendant moves for summary judgment on the same Counts. (Doc. 108 at 1) Defendant's position is that it has no obligation to pay the costs under either policy. (Doc. 108 at 2)

II. LEGAL STANDARD

A court must grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Rule 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Material facts are those facts "that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine dispute of material fact arises if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

The party moving for summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the record, together with affidavits, which it believes demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. If the movant is able to do so, the burden then shifts to the non-movant who "must do more than simply show that there is some metaphysical doubt as to the material facts," and, instead, must "come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). When considering a motion for summary judgment, a court must view the factual record and draw all reasonable inferences in a light most favorably to the nonmoving party. Leisek v. Brightwood Corp., 278 F.3d 895, 898 (9th Cir. 2002). "In reviewing cross-motions for summary judgment, each motion must be considered on its own merits." Acosta v. City Nat'l Corp., 922 F.3d 880, 885 (9th Cir. 2019) (internal quotations omitted). When parties file cross-motions for summary judgment, the court must review each motion separately, giving the nonmoving party for each motion the benefit of all reasonable inferences. Eat Right Foods Ltd. v. Whole Foods Mkt, Inc., 880 F.3d 1109, 1118 (9th Cir. 2018).

III. DISCUSSION

The parties move for partial summary judgment on whether Defendant is obligated to pay Plaintiff's Defense Costs under either the 2012-13 policy or the 2016-17 policy. Specifically, the parties seek summary judgment on Count I of the Complaint and Counts I and II of the Counterclaim. (Docs. 50 at 1, 108 at 1) Plaintiff seeks a declaratory judgment that Defendant is obligated to pay Supima's Defense Costs from the Tradeline case under either the 2012-2013 policy or the 2016-2017 policy. (Doc. 50 at 4) Defendant seeks a declaratory judgment that it does not have to pay for the Defense Costs under the 2012-2013 policy (Count One of the Counterclaim) or under the 2016-2017 policy (Count Two of the Counterclaim). (Doc. 12 at ¶¶23-37)

Plaintiff brought its declaratory judgment count under Arizona's Uniform Declaratory Judgments Act, A.R.S. § 12-1832. (Doc. 50 at 4) "Because declaratory reliefis a procedural vehicle used to declare the legal rights and relationships of parties, there is authority indicating that a state declaratory judgment claim brought in a federal diversity case must be converted to a claim brought under the Federal Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202." Jajo v. Auto-Owners Ins. Co., No. CV-13-00069-PHX-SRB, 2013 WL 12195628, at *2 (D. Ariz. Oct. 2, 2013) (internal citations omitted). However, the standards under state and federal law are consistent with each other. See id. "Declaratory relief is appropriate (1) when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and (2) when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Santan Crossing Pro. Plaza Condo. Ass'n v. Westfield Ins. Co., No. CV-20-00792-PHX-SPL, 2020 WL 4814345, at *3 (D. Ariz. Aug. 17, 2020) (citing Guerra v. Sutton, 783 F.2d 1371, 1376 (9th Cir. 1986)). Declaratory judgment is appropriate here because the parties need clarification on the interpretation of the insurance agreements between them and it will afford relief from the uncertainty surrounding the agreements.

Plaintiff's position is that the 2016-2017 policy does not require a claim to be "first made" during the policy period, but that it provides coverage for "claims made against [Supima] during the Policy Period," which would include the Tradeline arbitration. (Doc. 50 at 3) Plaintiffs also posit that even if the May 2013 Tradeline Letter constituted a Claim, the 2017 Tradeline case is a separate claim made against Supima during the 2016-2017 policy period that Supima timely reported to Philadelphia during the policy period. (Doc. 50 at 3) Plaintiff also takes the position that even if the May 2013 Letter and Tradeline case are a single claim, the Defense Costs are covered under the 2012-2013 policy because the policies are "claims-made policies" that provide coverage for any claims against the insured during the coverage period. (Doc. 50 at 3) According to Plaintiff, an insurer cannot deny coverage based on when it received notice of the claim unless the insurer can establish it was prejudiced by the timing of the notice or an affirmative defense. (Doc. 50 at 3)

Defendant's position is that the 2013 Tradeline Letter is a claim...