The opinion of the court was delivered by: Denise Cote, District Judge
Response Personnel, Inc. ("RPI") brings the above-captioned action against Hartford Fire Insurance Co. ("Hartford") for: (1) a declaration that certain losses RPI sustained from the departure of critical employees are covered by an insurance policy issued to it by Hartford; and, (2) damages for Hartford's breach of that contract. Hartford has moved pursuant to Rule 12(b)(6), Fed. R. Civ. P., to dismiss plaintiff's amended complaint ("Complaint") for failure to state a claim. Hartford principally argues that RPI's loss was sustained and discovered before the policy period. For the following reasons, Hartford's motion to dismiss is converted to a motion for summary judgment and is granted.
The following facts are drawn from the Complaint filed on December 17, 2010, the documents integral to the Complaint, and undisputed facts. RPI, a New York-based corporation organized under the laws of the state of New York, provides temporary and permanent employment staffing services in various industries including health care.
1. 2004 Departure of Employees On or about September 2, 2004, three RPI employees
submitted letters of resignation (the "Former Employees"). RPI quickly discovered that prior to their departure, the Former Employees had stolen confidential customer lists from RPI's medical placement business. On September 30, RPI filed a complaint in New York State Supreme Court (the "New York Complaint") against the Former Employees and the agencies for which they went to work, seeking both injunctive relief and damages (the "State Court Action"). Additionally, RPI filed an Order to Show Cause supported by the affidavit of its Vice President, Barry Cohen (the "Cohen Affidavit"), requesting immediate injunctive relief. Together, the New York Complaint and Cohen Affidavit alleged that in August and September 2004, the Former Employees "conspired to leave RPI and go to work for a competitor and to take for their benefit and the benefit of their new employer, confidential information and trade secrets from RPI."
On December 17, 2008, RPI filed the affidavit of Vice President Mindi Derry ("Derry") in opposition to the Former Employees' motion for partial summary judgment in the State Court Action. Derry testified that "immediately" after learning of the Former Employees' resignation on September 2, she "went to the RPI Long Island office and found that [two] defendants . . . had 'cleaned out' their desks and that the records and documents with which they worked in contacting health professional and health facilities were all missing." Derry explained that in the following months, she and other RPI employees "visited all of RPI's customers and clientele in order to try to preserve RPI's business relationship with them." Despite these efforts, Derry stated that RPI's business not only took an immediate severe drop but the balance ebbed away over the next several months. What had taken RPI nearly three years to create literally disappeared overnight. . . .
It was not just financially impossible for RPI to rebuild its business from scratch, but it was equally unfeasible to find replacement health workers in a short period of time that had previously taken two years to accomplish. Thus, [RPI] had no choice other than to terminate its medical staffing business operations in March of 2005. (Emphasis supplied.)
2. The 2006 Policy In 2006, Hartford issued RPI a CrimeShield Policy for Mercantile Entities (the "Policy") for the period beginning July 31, 2006 through July 31, 2008 (the "Policy Period").*fn1 The Policy's "Consideration Clause" provides, in relevant part:
In exchange for the payment of premium and subject to the Declarations, Insuring Agreements, Exclusions, General Conditions, Definitions and terms of this Policy, we will pay for loss which you sustain resulting directly from acts committed or events occurring at any time and discovered by you during the Policy Period shown in the Declarations . . . .
General Condition H, titled "Discovery" (the "Discovery Clause"), further states:
1. We will pay for loss which you sustain through acts or events committed or occurring at any time and which are discovered by you during the Policy Period . . . .
2. Discovery of loss occurs when you first become aware of facts which would cause a reasonable person to assume that a loss covered by this Policy has been, or may be incurred even though the exact ...