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O.K. Petroleum Distribution Corp. v. Travelers Indemnity Co.

July 15, 2010

O.K. PETROLEUM DISTRIBUTION CORP. ET AL, PLAINTIFFS,
v.
TRAVELERS INDEMNITY COMPANY ET AL, DEFENDANTS.



The opinion of the court was delivered by: McKENNA, D.J.

MEMORANDUM AND ORDER

Plaintiffs O.K. Petroleum Distribution Corp. and O.K. Petroleum International, Ltd. (collectively, "Plaintiffs") commenced this action against defendants Travelers Casualty and Surety Company (f/k/a The Aetna Casualty and Surety Company), United States Fidelity & Guaranty Company, and Gulf Insurance Company (collectively, "Defendants") for breach of contract, breach of the implied covenant of good faith and fair dealing, deceptive business practices in violation of New York General Business Law section 349, and a declaratory judgment pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 et seq. (Compl. ¶ 2.)

Plaintiffs purchased multi-peril insurance policies, including Commercial General Liability ("CGL") and Commercial Automobile Liability ("CAL") policies, from Defendants or their predecessors covering periods from 1989 to 2002. (Compl. Prelim. Statement 1.) Plaintiffs also purchased umbrella coverage for their CGL policies. (Id.) In or about May 2008, Plaintiffs were named as defendants in products liability litigation involving alleged product defects of gasoline containing Methyl Tertiary Butyl Ether ("MTBE"). (Compl. ¶ 25.) Plaintiffs allege that, despite giving Defendants notice of all MTBE-related lawsuits where Plaintiffs were named as defendants, Defendants disclaimed all defense obligations under the CGL and umbrella policies. (Id. ¶¶ 3, 5.) Defendants agreed to provide a percentage of total defense costs under the CAL policies (id. ¶ 5), however. Plaintiffs allege that Defendants were obligated to pay the total defense costs, not a percentage thereof, under the CAL policies (see id. ¶ 6).

Defendants move to dismiss Plaintiffs' second and third causes of action, breach of the implied covenant of good faith and fair dealing, and deceptive business practices in violation of New York General Business Law section 349, respectively. Defendants motion is pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.

For the reasons set forth below, Defendants motion to dismiss Plaintiffs second and third causes of action is GRANTED.

I. BACKGROUND*fn1

A. The Parties

1. Plaintiffs

Plaintiffs O.K. Petroleum Distribution Corp. and O.K. Petroleum International, Ltd. are corporations organized and existing under the laws of New York, with their principal places of business in West Babylon, New York. (Compl. ¶¶ 11-12.) The companies are family-owned, and are engaged in the regional distribution of gasoline and fuel oil. (Id. ¶ 13.)

2. Defendants

Defendants Travelers Casualty and Surety Company (f/k/a The Aetna Casualty and Surety Company), United States Fidelity & Guaranty Company, and Gulf Insurance Company are all indirectly wholly-owned subsidiaries of The Travelers Companies, Inc., a publicly traded company. (Fed. R. Civ. P. 7.1 Corp. Disclosure Statements.) Defendants maintain their principal places of business in Hartford, Connecticut (Compl. ¶¶ 14-16), and conduct business in the Southern District of New York (id. ¶ 18).

B. Factual Background

1. The Insurance Policies and the Underlying Litigation

From 1989 through 2002, Plaintiffs were issued multi-peril (CGL), automobile (CAL) and umbrella policies by Defendants or their predecessors. (Compl. ¶ 19.) Plaintiffs have paid premiums and complied with all applicable conditions relating to these policies. (Id. ¶ 20.) The policies do not contain any language which would allow Defendants to shift defense costs to the policyholder (id. ¶ 21), nor do they ...


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