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U.S. EXPRESS, INC. v. INTERCARGO INS. CO.

January 14, 1994

U.S. EXPRESS, INC., Plaintiff,
v.
INTERCARGO INSURANCE COMPANY and TRADE INSURANCE SERVICES, Defendants.



The opinion of the court was delivered by: I. LEO GLASSER

 GLASSER, United States District Judge:

 Plaintiff U.S. Express, Inc. ("U.S. Express") is a New York corporation engaged in the business of international freight forwarding. Defendant Intercargo Insurance Company ("Intercargo") is an Illinois corporation that, inter alia, provides professional liability insurance for international transportation specialists. Plaintiff originally filed this action in New York State Supreme Court, Queens County, by Complaint dated May 6, 1992. Pursuant to 28 U.S.C. § 1446, defendant removed the action to this court; jurisdiction is based on diversity of citizenship, 28 U.S.C. § 1332.

 On December 1, 1993, pursuant to leave granted by Magistrate Judge Caden, plaintiff filed an Amended Complaint, which names Trade Insurance Services ("TIS") as an additional defendant and alleges that TIS was an insurance broker acting as an agent of Intercargo. (Am. Compl. P 6). The Amended Complaint also states an additional cause of action in negligence. (Am. Compl. PP 34-44). Although plaintiff filed the Amended Complaint on December 1, service was not received by Intercargo (through the New York Secretary of State) until December 15, 1993 -- six days after Intercargo served its motion for summary judgment. (Supplemental Affidavit of Andrew R. Spector, Sworn to Dec. 22, 1993 ("Supp. Spector Aff.") P 3). Intercargo moved before Magistrate Judge Caden to strike the Amended Complaint, which motion was denied on December 20, 1993. While Intercargo now contends that the Amended Complaint is "nothing more than a desperate attempt [by U.S. Express] to invent a legal theory" to defeat Intercargo's motion for summary judgment (Supp. Spector Aff. P 5), it does not allege that it is prejudiced by the late service of the Amended Complaint. Rather, it claims that the record still supports the granting of summary judgment with respect to the Amended Complaint. (Supp. Spector Aff. P 5). The late service of the Amended Complaint therefore does not preclude this court from ruling on the summary judgment motion, and indeed, this court concludes that granting summary judgment on the Amended Complaint in Intercargo's favor is appropriate.

 FACTS

 The following facts are derived from the affidavits and Local Rule 3(g) statements of the parties, the pleadings and documentary exhibits submitted to the court and the argument before the court on January 7, 1994.

 A. The Insurance Policies

 In June 1990, Intercargo issued Errors and Omissions Insurance Policy No. ELJ-90121, which identified the insured as U.S. Brokers Inc., located at 434 Chelsea Street in East Boston, Massachusetts. The policy period was from June 11, 1990 to June 11, 1991; the premium was set at $ 1,400; and the policy indicated that the insured had seven employees. (Compl. Ex. A). Under cover of a letter dated July 10, 1990, TIS sent U.S. Brokers an endorsement indicating that effective June 19, 1990, U.S. Express was added to the policy as a named insured. The endorsement noted that "All other terms and conditions [of the policy] remain unchanged." (Id.).

 Policy No. 90121 was replaced by Policy No. ELJ-90201 (the "policy"), which was effective for the period from June 11, 1991 to June 11, 1992. *fn1" (Compl. Ex. B). The policy identified the named insured as U.S. Brokers (BOS) Inc. ("U.S. Brokers (BOS)"), located at 434 Chelsea Street in East Boston, Massachusetts. Again, the premium was set at $ 1,400, and the introduction to the policy indicated that the insured had a staff of seven. The policy also incorporated the endorsement adding U.S. Express as a named insured. (Id.).

 Under the terms of the policy, Intercargo agreed to indemnify the insured and other "protected persons" "for loss resulting from any negligent act, error or omission committed in the conduct of [the insured's] business as an International Transportation Specialist (Id. at Coverage P 1); Intercargo also agreed to defend suits for covered claims, even if a suit was groundless or fraudulent. (Id. at Coverage P 2(a)). The policy defined "protected persons" as "people and organizations protected under this agreement"; with respect to corporations, the policy provided as follows:

 
Corporation or Organization. If you are a corporation or some other type of organization named in the Introduction, you are protected. Your executive officers and directors are protected only while acting within the scope of their duties or authority for you.
 
Employees. Your employees are protected but only while they're acting within the scope of their duties or authority for you.

 (Id. at Coverage P 3). The policy further provided that if there were changes in the name or number of protected persons, the insured was obligated to notify Intercargo in writing "no later than the annual anniversary date of this policy if this is a three year agreement. If the number of staff represented is more than 10% higher or lower than the staff size as shown on the Introduction, then an additional premium or refund will be issued to you for the remaining policy period." (Id. at Conditions P 13). The agreement also specified that it could be changed only by written endorsement, the form which must be signed by an authorized representative of Intercargo. (Id. at Conditions P 12).

 Finally, the policy stated that when it was accepted by the insured, the insured agreed that "this policy is issued in reliance upon the truth of the statements and representations contained in your application"; that "the statements and representations are yours"; and that "neither you, nor we, have agreed to anything not contained in the agreement." (Id. at conditions P 17).

 B. The Present Action

 According to the Amended Complaint, during the latter part of 1991, five actions were commenced against U.S. Express in five different states, alleging breach of contract by U.S. Express. (Am. Compl. P 17). It is undisputed that U.S. Express presented all the claims to Intercargo in accordance with the terms of the policy, and Intercargo thereafter commenced its defense of U.S. Express. (Am. Compl. PP 18-19; Affidavit of Andrew R. Spector, Sworn to Nov. 24, 1993 ("Spector Aff.") P 5(a)). Intercargo subsequently communicated with U.S. Express by letter and telephone at its offices in Jamaica, New York, regarding the claims. (Affidavit of Anthony W. Amato, Jr., Sworn to Dec. 31, 1993 ("Amato Aff.") Ex. 24). *fn2" However, by letter dated February 13, 1992, Intercargo notified U.S. Express that it was disclaiming coverage and withdrawing from its representation of U.S. Express, effective February 14, 1992. (Am. Compl. P 21). Specifically, Intercargo informed U.S. Express that it was disclaiming coverage on the grounds that the transactions leading to the claims against U.S. Express were conducted by Transnet, Inc., which was not a named insured or protected entity under the policy, and that U.S. Express is not a named insured under the policy. (Amato Aff. Ex. 25). *fn3" U.S. Express has admitted that it "conducts business in all 50 states of the United States and throughout the world, in that its business involves arranging for the transportation of freight from any point in the world to any other point in the world." (Spector Aff. Ex. F P 8). It further has admitted that it maintains approximately fifteen employees at its offices in Jamaica, New York. (Spector Aff. Ex. F P 10).

 U.S. Express thereafter commenced this action, claiming that by denying coverage and refusing to defend, Intercargo breached the insurance contract and breached the covenant of good faith and fair dealing implied in the policy. (Am. Compl. P 24-29). Plaintiff also claims that Intercargo knew or should have known the extent of the business of U.S. Express, and that the declination of coverage is the result of the negligence of Intercargo and TIS in failing to investigate properly the added insured. (Am. Compl. PP 34-43). In addition, plaintiff seeks a declaratory judgment that it was entitled to be defended and otherwise covered by Intercargo. (Am. Compl. PP 30-33).

 By Answer to the original Complaint dated July 10, 1992, Intercargo denied that it had entered into an insurance contract with plaintiff and asserted various affirmative defenses against plaintiff. (See Spector Aff. Ex. D). Intercargo now seeks summary judgment on the grounds that U.S. Express in not an insured under the policy; that even if U.S. Express were an insured, the policy is void as the result of non-disclosure in the application; and that the Amended Complaint fails to state a cause of action for bad faith. In response, U.S. Express argues that summary judgment is inappropriate because discovery is not complete; the policy clearly and unambiguously names U.S. Express as an insured, and even if the policy is ...


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