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UTICA MUTUAL INSURANCE CO. v. COMPUTER SCIENCES CORP.

January 23, 2004.

UTICA MUTUAL INSURANCE COMPANY, Plaintiff
v.
COMPUTER SCIENCES CORPORATION, Defendant



The opinion of the court was delivered by: DAVID HURD, District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

Plaintiff Utica Mutual Insurance Company ("Utica Mutual") brings this action against Computer Sciences Corporation ("CSC") for breach of contract and breach of express warranties regarding CSC's software tool purchased by Utica Mutual that was designed to summarize injury claims and recommend a settlement range. On March 4, 2003, Utica Mutual filed the instant action in Oneida County Supreme Court. Defendant removed the action to federal court. CSC moves to dismiss the complaint filed by Utica Mutual or, in the alternative, to stay this case pending resolution of a similar lawsuit filed by CSC in the United States District Court for the Western District of Texas. Plaintiff cross moves to stay the Texas action.

  Oral argument was heard on this matter on August 22, 2003, in Albany, New York. Decision was reserved.

 II. FACTS

  Utica Mutual is a property and casualty insurance company that provides automobile and homeowner's insurance, and processes claims made under those policies. It is a New York corporation with its principal place of business in New Hartford, New York.

  Defendant CSC is a Nevada corporation with its principal place of business in El Segundo, California. CSC provides information technology solutions, including "Colossus," a software program which aids insurance companies in the evaluation of trauma-induced injuries. The Colossus system provides a connection between insurance coverage and medical information by evaluating "the level of pain and suffering for a given injury, the effect of the injury in impairing the body, and the impact on the claimant's lifestyle" and Page 3 recommending a settlement range. (PI. Compl. at 2.) According to CSC's marketing claims, use of the Colossus summaries and recommendations will result in greater consistency in determining payment or settlement of trauma-induced bodily injury claims by the insurance company.

  CSC conducted a study to determine the potential benefits of the software regarding Utica Mutual's closed claims. The CSC study, as presented in a Consistency and Impact Analysis statement, concluded that Utica Mutual "would save 16.16% on settlement costs by using Colossus on their closed claims, which would amount to a total savings of $36 million over five years." id. at 3. Additionally, the CSC study projected that Utica Mutual would incur costs for the use of Colossus in the amount of $700,000. Id. at 3.

  On November 24, 1998, Utica Mutual executed the CSC Customer agreement ("agreement") whereby CSC granted to it a license to use Colossus for five years with a right to extend the agreement for an additional five years. Pursuant to the agreement, Utica Mutual paid CSC a $1.8 million licensing fee for Colossus in addition to monthly utilization and support fees for five years totaling $3.5 million. (PI. Opp'n to Def. Mot. to Dismiss Ex. 2 ¶ 8.) On February 29, 2000, Utica Mutual exercised the option to extend the agreement for an additional five years. Utica Mutual maintains that since entering into the agreement, it has paid CSC a total of approximately $4.7 million, which it now seeks to recover. CSC asserts that the specific amounts owed to Utica Mutual by CSC constitute confidential information and cannot be publicly disclosed. (Def. Mot. to Dismiss Ex. B ¶ 8.)

  In early 2000, Utica Mutual alleges they began to have serious problems with Colossus, as Utica Mutual's claims adjusters were settling half of their claims below the suggested "low" settlement. id. at 4. It addition it claims Colossus required an excessive Page 4 amount of time for claims handlers to input claims and injury data into the system, which hindered claims adjusters' ability to properly evaluate claims.

  In September 2001, Utica Mutual met with CSC to discuss these problems with Colossus, as well as the system's failure to yield the cost savings that CSC had represented before the purchase. Utica Mutual claims CSC attempted to address the problems with Colossus but failed to make any changes. In March 2002, Utica Mutual advised CSC that it would discontinue its use of Colossus and also discontinue its monthly payments to CSC for the Colossus software. Monthly fees due under the agreement from Utica Mutual to CSC stopped as of May 2002.

  On February 20, 2003, CSC sent Utica Mutual a letter demanding Utica Mutual's prompt payment of all unpaid fees, and upon a failure to do so, CSC threatened to pursue legal action.*fn1 On that same date, CSC sent another letter that constituted a formal offer to settle the dispute. The offer was to remain open until March 14, 2003. Utica Mutual did not respond to these letters. As noted above, this action was filed on March 4, 2003.

  In its first cause of action, Utica Mutual claims CSC breached the agreement by failing to deliver a software product that "reduced Utica's bodily injury settlement payments, improved Utica's claims-handling efficiency and consistency, performed adequately in Utica's business environment, or achieved the cost-savings that CSC had promised to Utica." Id. at Page 5

  5. In its second cause of action, Utica Mutual claims CSC breached express warranties made in the agreement, namely the warranties that the purpose of Colossus was to reduce settlements and provide consistency in Utica Mutual's claims process, and that Utica Mutual would achieve cost-savings in the amount of $35 million over five years. In its third cause of action, Utica Mutual claims CSC breached its implied warranties of merchantability and fitness by failing to comply with the promises made regarding the results of the Colossus software. In its fourth cause of action, Utica Mutual claims CSC negligently misrepresented ...


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