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SENECA INSURANCE COMPANY v. KEMPER INSURANCE COMPANY

United States District Court, S.D. New York


May 20, 2004.

SENECA INSURANCE COMPANY, Plaintiff, -against- KEMPER INSURANCE COMPANY, Defendant

The opinion of the court was delivered by: PETER LEISURE, District Judge

OPINION AND ORDER

Plaintiff Seneca Insurance Company ("Seneca"), a New York corporation with its principal place of business in New York, filed a complaint against defendant Kemper Insurance Company ("Kemper"), an Illinois corporation with its principal place of business in Illinois. Plaintiff seeks damages for the costs of legal fees associated with its defense of an antitrust claim against defendant's insured, USA Equestrian, Inc. ("USA Equestrian"). Defendant moves to dismiss this action pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiff opposes the motion. For the reasons stated below, the Court grants defendant's motion.

  Background

  The relevant facts are not disputed. USA Equestrian, formerly known as American Horse Shows Association, Inc., is the insured. (Plaintiff's Complaint, ¶ 7 ("Compl.").) Seneca provided coverage to USA Equestrian from July 18, 2000, through July 18, 2001, under a liability insurance policy. (Compl., ¶ 8; Plaintiff Seneca Insurance Company's Memorandum of Law in Opposition ("Plaintiff's Opposition"), Exh. 2 ("Seneca Policy").) Kemper provided coverage to USA Equestrian from August 31, 2001, through August 31, 2002, under a separate liability insurance policy. (Compl., ¶ 11, Exh. A ("Kemper Policy").)

  Michael W. Gallagher, a Florida resident, is a member of USA Equestrian and organizes horse shows in Florida. (Plaintiff's Opposition, Exh. 1, ¶ 4 ("JES Compl.").) From 2000 to 2003, Gallagher applied to USA Equestrian to organize "Recognized Horse Shows" on certain dates and in certain locations in Florida. (JES Compl., ¶ 42.) USA Equestrian denied several of Gallagher's applications on the ground of "mileage conflicts." (JES Compl., ¶ 42.) During the same period, JES Properties ("JES"), a Florida corporation that holds horse shows in Florida, applied to USA Equestrian to organize Recognized Horse Shows on certain dates and in certain locations in Florida, which differed from Gallagher's. (JES Compl., ¶ 41.) USA Equestrian denied several of its applications, also on the ground of mileage conflicts. (JES Compl., ¶ 41.)

  In a July 6, 2001, letter to USA Equestrian ("Gallagher Claim"), Gallagher's counsel alleged that USA Equestrian's policy of declining to designate certain horse shows as Recognized Horse Shows on the ground of mileage conflicts constituted a restraint of competition in violation of antitrust laws. (Compl., ¶ 9; Notice of Motion and Motion of Defendant Kemper Insurance Company to Dismiss ("Notice of Motion"), Exh. 1 ("First Trupp Letter").) USA Equestrian submitted the Gallagher Claim to Seneca. Seneca disclaimed coverage on the ground that the Seneca Policy did not apply to claims involving antitrust violations. (Plaintiff's Opposition, Exh. 3, at 2 ("Milner Letter").) Seneca, however, stated that because the duty to defend is broader than the duty to indemnify, Seneca would defend the claim under a reservation of rights. (Milner Letter, at 2.)

  In a July 26, 2002, letter to USA Equestrian, counsel for JES and Gallagher (the same attorney who had written the July 6, 2001 letter on behalf of Gallagher) stated that both parties intended to file a complaint seeking injunctive relief and damages against USA Equestrian for antitrust violations. (Compl., ¶ 12; Plaintiff's Opposition, Exh. 4, at 1 ("Second Trupp Letter").) On August 29, 2002, JES and Gallagher jointly filed the complaint ("JES Claim") in the United States District Court for the Middle District of Florida. (Compl., ¶ 13.) USA Equestrian submitted the JES Claim to Kemper. Kemper rejected the claim on two grounds. (Compl., ¶ 15; see Defendant's Memorandum of Law in Support of Its Motion to Dismiss, at 3 ("Defendant's Memo").) First, Kemper disclaimed coverage of the JES Claim on the ground that the Kemper Policy's "first-made" provision applied. This provision deems claims that arise from "Interrelated Wrongful Acts" to be one claim "first made" on the date of the earliest claim:

All Claims arising from the same Wrongful Act and all Interrelated Wrongful Acts shall be deemed one Claim, and such Claim shall be deemed to be first made on the earlier date that (i) any of the Claims is first made against an Insured under this Policy or any prior policy, or (ii) valid notice was given by the Insured under this policy or any prior policy of any Wrongful Act or any fact, circumstance, situation, event, transaction or cause which underlies such Claim. Coverage under this policy shall only apply with respect to Claims deemed to have been first made during the Policy Period and reported in writing to the Insurer in accordance with the terms herein. (Kemper Policy, at 8.)
Pursuant to this provision, Kemper concluded that the July 6, 2001, Gallagher letter and the August 29, 2002, JES Claim were both claims; that these claims arose from the same "Wrongful Acts" and "Interrelated Wrongful Acts"; that together they thereafter constituted one claim first made on July 6, 2001, prior to the Kemper Policy period; and that consequently the Kemper Policy did not cover the claim. (Compl., Exh. B, at 2-3 ("Forsyth Letter").) Seneca contests this argument. (Plaintiff's Opposition, at 4-5.)

  Second, Kemper argued that even if the first-made provision did not apply to disclaim coverage of the JES Claim, the JES Claim was excluded under the Kemper Policy's "prior insurance" provision. This provision excludes coverage for claims that arise from Wrongful Acts under other insurance policies, subject to certain conditions:

A. The Insurer shall not be liable for Loss arising from any Claim made against any Insured: 1. based upon, arising from, or attributable to: (a) any Wrongful Act, fact, circumstance or situation which has been the subject of any written notice given under any other policy, providing such policy would have provided coverage but for the exhaustion or diminution of its limits of liability; or (b) any other Wrongful Act whenever occurring, which, together with a Wrongful Act described in (a) above, constitute Interrelated Wrongful Acts." (Kemper Policy, at 5 (emphasis added).)
Seneca also contests this argument. (Plaintiff's Opposition, at 4-5.) Subsequently, Seneca filed the current complaint against Kemper. Seneca alleges that Kemper has failed to comply with Kemper's obligations to defend USA Equestrian against the JES Claim. (Compl., ¶¶ 20, 21.) In response, Kemper moves to dismiss Seneca's complaint on two grounds: (1) The JES Claim was "first made" prior to, not during, the Kemper Policy period and thus is not covered by the Kemper Policy; (2) alternatively, even if the JES Claim was first made during the Kemper Policy period and thus is covered by the Kemper Policy, the JES Claim is excluded by the Kemper Policy's "prior insurance" provision. (Defendant's Memo, at 3.) Because the JES Claim was first made prior to the Kemper Policy period, the Court grants the defendant's motion to dismiss.

  Discussion

 I. Motion To Dismiss Standard

  The Court will grant a motion to dismiss under Rule 12(b)(6) only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The complaint, however, "must include allegations concerning each of the material elements necessary to sustain recovery under a viable legal theory." Huntington Dental & Med. Co., Inc. v. Minnesota Mining & Mfg. Co., No. 95 Civ. 10959, 1998 WL 60954, at *3 (S.D.N.Y. Feb. 13, 1998). The Court must accept the complaint's allegations as true, read the complaint generously, and draw all reasonable inferences in the plaintiffs favor. Conley, 355 U.S. at 46; Hospital Bldg. Co. v. Trustees of Rex Hospital 425 U.S. 738, 740 (1976); Dublin v. E.F. Hutton Group, Inc., 695 F. Supp. 138 (S.D.N.Y. 1988). The factual allegations set forth in the complaint do not constitute findings of fact by the Court; instead, they are presumed to be true for the purpose of deciding the motion to dismiss. AIM Int'l Trading, L.L.C. v. Valcucine S.p.A., 2003 U.S. Dist. LEXIS 8594, at *9 (S.D.N.Y. May 21, 2003). Consequently, "the issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). When ruling on a motion made under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court limits its consideration "to the factual allegations in [the] complaint . . ., documents attached to the complaint as an exhibit or incorporated in it by reference . . ., matters of which judicial notice may be taken . . ., or documents either in plaintiff['s] possession or of which plaintiff[] had knowledge and relied in bringing the suit." Brass v. Am. Film Tech., Inc., 987 F.2d 142, 150 (2d Cir. 1993).*fn1

 II. The Kemper Policy Does Not Cover the JES Claim Because the Gallagher Claim and the JES Claim Are Deemed One Claim First Made Prior to the Kemper Policy Period

  To determine whether the JES Claim was "first made" during the Kemper Policy period, the Court must apply the standards governing the interpretation of insurance contracts under New York law to determine: (1) whether the Gallagher Claim is deemed a "claim" under the Kemper Policy; and (2) if so, whether the Gallagher Claim and the JES Claim arise from the same Wrongful Act or, alternatively, from Interrelated Wrongful Acts. If the Gallagher Claim and the JES Claim arise from the same Wrongful Act or from Interrelated Wrongful Acts, then they are deemed one claim pursuant to the Kemper Policy's "first-made" provision. Moreover, this one claim is deemed to have been first made on the earlier date of the claims at issue. The Court concludes that the JES Claim was first made prior to the Kemper Policy period and thus is not covered by the Kemper Policy. The July 6, 2001, Gallagher Letter is a claim filed during the Seneca Policy period, and the JES Claim is a claim filed during the Kemper Policy period. The Kemper Policy's "first-made" provision, however, unambiguously provides that all claims arising from Interrelated Wrongful Acts shall be deemed one claim first made on the date of the earlier of the claims. The Gallagher Claim and the JES Claim arise from, at minimum, Interrelated Wrongful Acts because they share a sufficient factual nexus. Thus, the Gallagher Claim and the JES Claim are deemed to be one claim. This one claim was first made against USA Equestrian on July 6, 2001, the date of the Gallagher Claim, which is prior to the commencement of the Kemper Policy. Thus, this one claim was not first made during the Kemper Policy period, and the Kemper Policy does not provide coverage for it.

  A. The Interpretation of Insurance Contracts Under New York Law

  Under New York law, the interpretation of a contract "is a matter of law for the court to decide." Int'l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir. 2002) (citing K. Bell & Associates., Inc. v. Lloyd's Underwriters, 97 F.3d 632, 637 (2d Cir. 1996)). Generally, the Court's analysis consists of three stages, the first of which "is probably the only component of the inquiry susceptible to determination on a motion to dismiss." David v. Am. Home Assurance Co., 1997 U.S. Dist. LEXIS 4177, at *7 (S.D.N.Y. Apr. 3, 1997). First, the Court must determine "whether the contract is unambiguous with respect to the question disputed by the parties." Int'l Multifoods Corp., 309 F.3d. at 83. "If the language of the insurance contract is unambiguous, [the Court applies] its terms. Where its terms are reasonably susceptible to more than one interpretation, the policy must be regarded as ambiguous." Andy Warhol Found, for the Visual Arts, Inc. v. Fed. Ins. Co., 189 F.3d 208, 215 (2d Cir. 1999). Contract language is ambiguous where it could suggest "more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." Lightfoot v. Union Carbide Corp., 110 F.3d 898, 906 (2d Cir. 1997) (citation and internal quotation marks omitted). `The language of a contract is not made ambiguous simply because the parties urge different interpretations." Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992); see also Hugo Boss Fashions Inc. v. Fed. Ins. Co., 252 F.3d 608, 616-17 (2d Cir. 2001) ("[U]nder New York law, ambiguity does not exist `simply because the parties urge different interpretations/ Rather, `the question of whether an insurance policy is ambiguous is a matter of law to be determined by the court." (internal citation omitted)). Second, "[o]nce a court concludes that an insurance provision is ambiguous, the court may accept any available extrinsic evidence to ascertain the meaning intended by the parties during the formation of the contract." Morgan Stanley Group, Inc. v. New England Ins. Co., 225 F.3d 270, 275-76 (2d Cir. 2000) (internal quotations omitted). Third, "[i]f the extrinsic evidence does not yield a conclusive answer as to the parties' intent, [the] court may apply other rules of contract construction, including the rule of contra proferentem, which generally provides that where an insurer drafts a policy any ambiguity in [the] . . . policy should be resolved in favor of the insured. "Morgan Stanley Group, Inc., 225 F.3d at 275-76 (internal quotations omitted).

  B. The July 6, 2001, Gallagher Letter Is a Claim

  "Courts have found that the term `claim' as used in liability insurance policies is unambiguous and generally means a demand by a third party against the insured for money damages or other relief owed." Home Ins. Co. of Illinois v. Spectrum Info. Tech., Inc., 930 F. Supp. 825, 846 (E.D.N.Y. 1996). A claim is not necessarily a formal lawsuit-especially when the policy "treats `claims' and `suits' as separate terms. However, an accusation that wrongdoing occurred is not by itself a claim; nor is a naked threat of a future lawsuit, or a request for information or an explanation. A claim requires, in short, a specific demand for relief." Windham Solid Waste Mgmt. Dist. v. Nat. Gas. Co., 146 F.3d 131, 134 (2d Cir. 1998) (citations omitted). In harmony with the case law, the Kemper Policy defines the term "claim" to mean, among other things, the insured's receipt of "a written demand against any Insured for monetary damages or other relief." (Kemper Policy, at 2.)

  Pursuant to the case law and the Kemper Policy's definition, the July 6, 2001, letter that Gallagher's counsel sent to USA Equestrian on Gallagher's behalf is a "claim." In the letter, Gallagher's counsel alleged that USA Equestrian's denial of certain of Gallagher's applications constituted a restraint on competition in violation of federal and state antitrust laws. (First Trupp Letter, at 1-2.) Counsel also alleged that Gallagher "sustained actual direct damages" as a consequence of these actions. (First Trupp Letter, at 2.) Finally, counsel requested a meeting with USA Equestrian to seek a "possible resolution of this matter" and stated that if such a meeting did not occur by August 1, 2001, it would "proceed accordingly on Mr. Gallagher's behalf." (First Trupp Letter, at 2-3). Although counsel did not specifically state that the purpose of this meeting was to demand monetary damages or other relief, the implication is that counsel requested the meeting for this reason. In fact, approximately one year later, the same counsel sent to USA Equestrian a letter on JES and Gallagher's behalf stating that in 2001 discussions between Gallagher and USA Equestrian had "ended without any positive results"; attached to this letter was a draft complaint requesting injunctive relief and damages. (Second Trupp Letter, at 1.) Finally, in its pleadings, Seneca itself refers to the letter as a "claim." (Compl. ¶ 9 ("Gallagher . . . provided notice to Seneca of a claim against Seneca's insured USA Equestrian.").) Based on these facts, the letter constitutes a written demand against USA Equestrian for monetary damages or other relief. Accordingly, the July 6, 2001, Gallagher letter is a "claim."

  C. The Gallagher Claim and the JES Claim Arise from, at Minimum, Interrelated Wrongful Acts

  As stated above, the Kemper Policy provides that "[a]ll Claims arising from the same Wrongful Act and all Interrelated Wrongful Acts shall be deemed one Claim." (Kemper Policy, at 8.) It defines "Wrongful Act" as "1. any error, misstatement, misleading statement, act, omission, neglect, or breach of duty actually or allegedly committed or attempted by the Policyholder or any Insured in their capacity as such; or 2. any matter claimed against any Insured Individual solely by reason of his or her capacity as such." (Kemper Policy, at 4.) It defines "Interrelated Wrongful Acts" as "any and all Wrongful Acts that have as a common nexus any fact, circumstance, situation, event, transaction, cause or series of causally or logically connected facts, circumstances, situations, events, transactions or causes." (Kemper Policy, at 3 (emphasis added).) Applying these two definitions to the facts of the present motion, pursuant to the standards of interpretation articulated in the relevant case law, the Court concludes that the Gallagher Claim and the JES Claim arise from, at minimum, Interrelated Wrongful Acts.

  Seneca argues that the Gallagher Claim and the JES Claim arise from neither the same Wrongful Act, nor from Interrelated Wrongful Acts. Seneca contends that the Gallagher Claim arises from the Wrongful Act of USA Equestrian's denial of Gallagher's applications and that the JES Claim arises from the different Wrongful Act of USA Equestrian's denial of JES's applications. (Plaintiff's Opposition, at 13.) Furthermore, Seneca contends that these Wrongful Acts are not interrelated because Gallagher and JES had no business connection; Gallagher and JES submitted applications for shows scheduled on different dates and in different locations; and USA Equestrian's denial of Gallagher's and JES's respective applications constituted "separate and distinct acts or transactions." (Plaintiff's Opposition, at 12.)

  Definitions of the term "Interrelated Wrongful Acts" similar to that included in the Kemper Policy are not uncommon. See Dan A. Bailey, Insurance Coverage 2004: Claim Trends & Litigation 218 (Practising Law Institute, Litigation and Administrative Practice Course Handbook Series, Litigation, PLI Order Number H0-0006, February 17-18, 2004) (stating that some insurance policies broadly define "Interrelated Wrongful Acts to include any acts which have as a common nexus any fact, circumstance, situation, event, transaction or series of facts, circumstances, situations, events or transactions"). The Second Circuit, however, has not addressed whether such definitions in the specific context of scope-of-coverage provisions are unambiguous.*fn2 Nevertheless, courts in the Second Circuit that have interpreted the applicability of certain exclusion provisions using similar language provide guidance on determining when claims are "in any way related." Home Insurance Co. v. Spectrum Information Technologies Inc., 930 F. Supp. 825, 849 (E.D.N.Y. 1996).

  For instance, in Home Insurance Co. v. Spectrum Information Technologies, Inc., a decision that both parties cite, the U.S. District Court for the Eastern District of New York held that the applicability of a provision in an insurance policy that excludes from coverage loss "in any way related to" a fact, circumstance, or situation that has been the subject of notice under a prior policy depends "on whether there was a sufficient factual nexus for the exclusion to apply." Home Insurance Co., 930 F. Supp. at 850 (emphasis added).

  Claims share a sufficient factual nexus when they are "based on the same agreement" or when they involve the "same underlying circumstance." Home Ins. Co., 930 F. Supp. at 850. For example, in Comerica Bank v. Lexington Insurance Co., the Court held that subsequent litigation was excluded from coverage under the insurance policy's prior and pending litigation provision because the suit was based on the same agreement to sell stock on which the previously filed suits were based. 3 F.3d 939 (6th Cir. 1993) (cited in Home Insurance Co., 930 F. Supp. at 850). Similarly, in Bensalem Township v. Western World Insurance Co., subsequent litigation under the insurance policy's prior and pending litigation provision was excluded from coverage because the two actions at issue involved the same underlying circumstance: the corporation's development of an industrial park and the township's alleged attempts to interfere with the development of the same park. 1992 U.S. Dist. LEXIS 8243, at *5-6 (E.D. Pa. 1992), aff'd in part, rev'd in part, 38 F.3d 1303, 1315 (3d Cir. 1994).*fn3

  The mere fact that claims are joined together in a suit does not establish a sufficient factual nexus between the claims. "[T]he concept of `claim' is distinct from that of `suit,' and neither the initial amalgamation of claims in one suit nor the variety of procedural metamorphoses which a suit often undergoes . . . alters the distinctive nature of individual claims or the consequent loss potentially incurred therefrom." Home Ins. Co., 930 F. Supp. at 850. In addition, "bald allegations of conspiracy are insufficient to enmesh otherwise distinct claims." Home Ins. Co., 930 F. Supp. at 851. Instead, the court evaluates an exclusion based on the underlying facts rather than the legal theories pleaded or additional defendants named. In summary, claims do not share a sufficient factual nexus when a claim arising under one policy describes wrongs that are "factually and legally distinct" from wrongs described in a claim arising under a prior policy. Home Ins. Co., 930 F. Supp. at 849.

  Home Insurance Co. itself involved a coverage dispute relating to a number of claims brought against the insured, Spectrum. The Court grouped these claims into the following categories: (1) claims brought during the original policy period involving the insured's alleged public misrepresentations of the value of a licensing agreement between the insured and AT&T, referred to as the AT&T Lawsuits; (2) an SEC inquiry into trading and disclosures involving the insured, in which the SEC requested documents regarding the AT&T agreement, referred to as the SEC Inquiry; (3) claims brought during the renewal policy period alleging that the insured made false and misleading public statements regarding its earnings, referred to as the Restatement Claims; (4) claims also brought during the renewal policy period alleging that several of the insured's officers and directors engaged in insider trading by exercising their options to purchase the company's stock based on material, adverse information, referred to as the Insider Trading Claims; (5) claims also brought under the renewal period alleging that the insured's CEO, John Sculley, made false and misleading public statements, referred to as the Sculley Claims.

  The Court concluded that the insurer failed to demonstrate a sufficient factual nexus between the Restatement Claims and the AT&T Lawsuits or the SEC Inquiry. The AT&T Lawsuits arose from the insured's President's May 10, 1993, statement that the agreement between the insured and AT&T "would be one of the most important licensing agreements of the decade" (a statement that led the SEC to initiate an informal inquiry ten days later), while the Restatement Claims arose from allegations that the insured's Forms 10-Q filed with the SEC on August 16, 1993 and November 15, 1993 contained false and misleading statements of its earnings and were designed to facilitate the alleged insider trading by the President and two Vice Presidents. Consequently, the Court found that the Restatement Claims "describe wrongs which are factually and legally distinct from the prior claims alleged against [the insured]." Home Ins. Co., 930 F. Supp. at 849.

  By contrast, the Court concluded "that if the information underlying the insider trading [claims] was the SEC Inquiry, then loss arising from the insider trading would be excluded from coverage because it would be `related' to the SEC Inquiry, which in turn `arose' from the subject matter of the AT&T Lawsuits." Home Ins. Co., 930 F. Supp. at 849. Similarly, the Court concluded that "if the information [that Sculley] failed to disclose[, which gave rise to the Sculley Claims,] was the SEC Inquiry, then loss arising from his nondisclosure would be excluded." Home Insurance Co., 930 F. Supp. at 849-50.

  In Zunenshine v. Executive Risk Indemnity, Inc., another decision on which both parties rely, Judge Mukasey defined the meaning of "sufficient factual nexus" more closely. 97 Civ. 5525 (MBM), 1998 U.S. Dist. LEXIS 12699, at *11-12(S.D.N.Y. Aug. 17, 1998), aff'd No. 98-9251, 1999 U.S. App. LEXIS 14629 (2d Cir. June 29, 1999). He interpreted two exclusion provisions with policy language similar to the Kemper Policy's definition of Interrelated Wrongful Acts. These provisions excluded coverage for claims "arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any fact, circumstance, situation, transaction, event or Wrongful Act" alleged in a pending lawsuit or made the subject of a prior notice given to another insurer. Zunenshine, 1998 U.S. Dist. LEXIS 12699, at *3-4. The term "Wrongful Act" included "any actual or alleged act, error, omission, misstatement, misleading statement or breach of duty" by a director or officer in his official capacity." Zunenshine, 1998 U.S. Dist. LEXIS 12699, at *4.

  The District Court drew two conclusions from this policy language relevant to the present motion. First, "[n]othing in the plain language of either exclusion is ambiguous." Zunenshine, 1998 U.S. Dist. LEXIS 12699, at *12. Second, with respect to whether the provision excluded the claims at issue, "[n]othing in the Policy requires that a claim involve precisely the same parties, legal theories, `Wrongful Act[s],' or requests for relief for the . . .' exclusions to apply." Zunenshine, 1998 U.S. Dist. LEXIS 12699 at *15. Furthermore, "[t]o read the additional terms suggested by the plaintiffs into these exclusions would be at the same time to render them virtually meaningless: a claim would be excluded only if it were based on an identical lawsuit or were the subject of an identical prior notice given to another insurer." Zunenshine, 1998 U.S. Dist. LEXIS 12699, at* 15-16.

  In summary, the standard articulated in Home Insurance Co. and Zunenshine provides that the applicability of a provision in an insurance policy that excludes from coverage loss "in any way related to" a fact, circumstance, or situation that has been the subject of notice under a prior policy depends "on whether there was a sufficient factual nexus for the exclusion to apply." Home Ins. Co., 930 F. Supp. at 850 (emphasis added).

  Applying this standard to the interpretation of the Kemper Policy's definition of "Interrelated Wrongful Acts," the Court concludes that the definition is unambiguous, that Seneca can prove no set of facts in support of its interpretation of the definition, and that there is a sufficient factual nexus between the Wrongful Acts from which the Gallagher Claim and the JES Claim arise to justify their classification as Interrelated Wrongful Acts. As Seneca correctly argues, the mere fact that JES and Gallagher jointly filed the JES Complaint does not demonstrate a sufficient factual nexus between the Wrongful Acts from which the Gallagher Claim and the JES Claim respectively arise. Nevertheless, the Wrongful Acts underlying the Gallagher Claim and the JES Claim are neither factually nor legally distinct, but instead arise from common facts. The JES complaint itself details numerous logically connected facts and circumstances between them. These include, but are not limited to, the following: The complaint alleges that both plaintiffs intended to promote "`A' rated hunter and jumper Recognized Horse Shows on certain dates and in certain locations" (Plaintiff's Opposition, JES Compl. ¶ 39), both attempted to secure such dates (id. at ¶ 40), both applied for such dates between 2000 and 2003 (id. at ¶ 41, 42), USA Equestrian denied certain of these dates (id. at ¶ 43), USA Equestrian denied these dates on the basis of the mileage rule (id. at ¶ 44), the mileage rule gives USA Equestrian "a virtual monopoly over the ability to hold `A' rated hunter and jumper and Recognized Horse Shows" (id. at ¶ 46), the mileage rule prohibits "new promoters" like both plaintiffs from entering the marketplace (id. at ¶ 51), both plaintiffs are "within the sector of the economy endangered by the breakdown of competition as a result of the enforcement of the Mileage Rule" (id. at ¶ 52), both plaintiffs are "the target against which the antitrust activity is directed" (id. at ¶ 53), and USA Equestrian's conduct has damaged both plaintiffs' businesses (id. at ¶ 54). Moreover, the attorney who drafted the July 6, 2001 Gallagher Claim on behalf of Gallagher is the same attorney who drafted the July 26, 2002, letter on behalf of JES and Gallagher and who filed the JES Complaint. Finally, any lack of a business connection between Gallagher and JES does not counterbalance the weight of these common facts, because the Kemper Policy's definition of Interrelated Wrongful Acts does not require that the parties have a business connection. These logically connected facts and circumstances demonstrate a factual nexus between the Gallagher Claim and the JES Claim, and this factual nexus is sufficient to justify the conclusion that the two claims arise from Interrelated Wrongful Acts. Pursuant to the unambiguous language of the Kemper Policy's "first-made" provision, these two claims are deemed to be one claim first made on July 6, 2001, prior to the commencement of the Kemper Policy. As this one claim was not first made during the Kemper Policy period, the Kemper Policy does not provide coverage for it. The Court consequently grants Kemper's motion to dismiss on this ground.

 III. The Kemper Policy's Prior Insurance Provision Does Not Support Dismissal

  The Court grants Kemper's motion to dismiss on the ground that the Kemper Policy does not cover the JES Claim, but in the interest of completeness the Court now addresses Kemper's alternative argument that the Kemper Policy's "prior insurance" provision excludes the JES Claim. The prior insurance provision in the Kemper Policy, set forth above, excludes certain claims from Kemper's coverage. Among the requirements for the prior insurance exclusion to apply is that written notice of the claim was given under any other policy, and the other policy "would have provided coverage but for the exhaustion or diminution of its limits of liability." (Kemper Policy, at 5.)

  Under New York law "[t]he insurer generally bears the burden of proving that the claim falls within the scope of an exclusion. To negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case." Village of Sylvan Beach v. Travelers Indem. Co., 55 F.3d 114, 115 (2d Cir. 1995) (internal quotations omitted). The strict construction of exclusionary provisions is based "on the insurer's power to craft the language to limit the scope and defeat the purpose of the principal contract." Home Ins. Co. of Illinois v. Spectrum Info. Tech., Inc., 930 F. Supp. 825, 848 (E.D.N.Y. 1996) (internal quotations omitted).

  Here, Kemper is the insurer claiming that its exclusion provision applies. Kemper therefore bears the burden in this litigation of proving that the prior insurance provision in its insurance policy with USA Equestrian excludes coverage of the JES Claim against USA Equestrian. Kemper has no trouble meeting the first two parts of its burden, as the prior insurance provision is stated in clear and unmistakable language and is subject to no other reasonable interpretation. The prior insurance provision clearly and unambiguously requires that another insurance policy cover the contested claim. On its motion to dismiss, however, Kemper does not meet the third part of its burden, as it does not show that the exclusion applies to the JES claim.

  Seneca contends that its policy does not provide coverage for antitrust claims. The Seneca Policy provides: "This policy does not apply to any claim involving allegations of . . . antitrust violations, price fixing, restraint of trade . . .; however, the Insured shall be reimbursed for all amounts which would have been collectable under this policy if such allegations are not subsequently proven." (Seneca Policy, at 2 (emphasis added).) Seneca's counsel refused to indemnify the Gallagher Claim for this reason: "Seneca disclaims coverage for the [antitrust] allegations set forth in Mr. Gallagher's counsel's letter of July 6, 2001, and will not indemnify . . . USA Equestrian . . . with respect to those allegations. (Milner Letter, at 2.) Nevertheless, in the same letter counsel agreed to defend the Gallagher Claim: "[B]ecause the `duty to defend' is broader than the duty to indemnify, and because the allegations have not been proven, Seneca will defend the claim under a reservation of rights." (Milner Letter, at 2.) Seneca's counsel continued: `Therefore, Seneca will defend any lawsuit commenced by Mr. Gallagher based on the allegation set forth in counsel's letter of July 6, 2001, while reserving all rights, including the right to disclaim any obligation to indemnify [USA Equestrian] for the allegations in the letter." (Milner Letter, at 2.)

  Seneca's acceptance of its duty to defend perhaps equates to an acknowledgement that it possibly, as a matter of law, is required to cover USA Equestrian for liability arising out of antitrust violations. Cf., e.g., Maryland Cas. Co. v. Cont'l Cas. Co., 332 F.3d 145, 160 (2d Cir. 2003) ("[A]n insurer owes its insured no duty of defense `if it can be concluded as a matter of law that there is no possible factual or legal basis on which the insurer will be obligated to indemnify the insured.'" (quoting Frontier Ins. Co. v. State, 87 N.Y.2d 864, 867 (N.Y. 1995))); IBM v. Liberty Mut. Fire Ins. Co., 303 F.3d 419, 424 (2d Cir. 2002) ("An insurer must defend whenever the four corners of the complaint suggest-or the insurer has actual knowledge of facts establishing-a reasonable possibility of coverage." (quoting Cont'l Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 648 (N.Y. 1993))). The actual extent of Seneca's coverage, however, is in dispute, and the complaint is not deficient on this point such that it must be dismissed, particularly because the burden to prove that the exclusion applies is on Kemper, the exclusion's proponent.

  The Court therefore rejects defendant's second ground for dismissal. At this stage in the litigation it is not clear whether Seneca "would have provided coverage" for the JES claim, and this is an essential element of the prior insurance exclusionary provision. As defendant falls short of meeting its burden to show that the prior insurance provision applies, and as plaintiff's complaint suffers no deficiency on this point, the Court rejects defendant's assertion of the prior insurance provision as a ground for dismissal. Conclusion

  For the reasons set forth above, the Court grants the defendant's motion to dismiss. The JES Claim shares a sufficient factual nexus with the Gallagher Claim, and thus was "first made" prior to, not during, the Kemper Policy period and thus is not covered by the Kemper Policy.

  SO ORDERED.


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