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SENECA INSURANCE COMPANY v. KEMPER INSURANCE COMPANY

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, ...


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