Equipmentfacts, LLC v. Beazley Insurance Company, Inc.
Filing
67
OPINION AND ORDER granting 60 Motion for summary judgment; denying 61 Motion for summary judgment. The Clerk shall enter judgment in favor of defendant and against plaintiff declaring that defendant did not owe a duty to defend, terminate all deadlines, and close the file. See Opinion and Order for details. Signed by Judge John E. Steele on 1/12/2017. (RKR)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
EQUIPMENTFACTS, LLC,
Plaintiff,
v.
Case No: 2:16-cv-265-FtM-99CM
BEAZLEY
INC.,
INSURANCE
COMPANY,
Defendant.
OPINION AND ORDER
This matter comes before the Court on the parties’ cross
Motions for Summary Judgment (Docs. ##60, 61) filed on October 31,
2016.
The parties filed responses in opposition to each other’s
motion (Docs. ##65, 66) on November 14, 2016.
Both parties seek
judgment as to defendant’s duty to defend pursuant to two almost
identical insurance policies.
Both parties agree that there are
no disputed issues of material fact which preclude summary judgment
for one of them, although they dispute who should prevail.
For
the reasons set forth below, the Court grants summary judgment in
favor of defendant.
I.
Equipmentfacts, LLC (plaintiff or Equipmentfacts) is a New
Jersey limited liability company which provides online auctions of
heavy
equipment.
Beazley
Insurance
Company,
Inc.
(Beazley
Insurance) issued a “Professional and Technology Based Services,
Technology Products, Computer Network Security, and Multimedia and
Advertising Liability Insurance Policy” to Equipmentfacts, under
policy number V15RWX140601m, with a policy period of March 11,
2014 to March 11, 2015. (Doc. #60-2.)
A renewal policy was issued
under policy number V15RWX150701, with a policy period of March
11, 2015 to March 11, 2016 (collectively, the Policies). 1
#60-3.)
which
(Doc.
The Policies are “claims made and reported” policies in
Beazley
Insurance
agreed
to
defend
Equipmentfacts
in
lawsuits asserting certain types of claims, subject to certain
enumerated exclusions. 2
On or about February 20, 2015, Sham Zen Zou and Machine &
Tool Co., Ltd. (collectively, “Claimants”), filed a Complaint
against Equipmentfacts in state court in the Twentieth Judicial
Circuit in and for Lee County, Sham Zen Zuo and Machine & Tool Co.
Ltd. v. Equipmentfacts, LLC and Mike Miski d/b/a Allstar Auction
Co., Case No. 15-CA-479 (the Underlying Action) alleging fraud,
breach of contract, unjust enrichment, and conversion.
4.)
(Doc. #60-
Equipmentfacts tendered the Complaint to Beazley Insurance,
which denied coverage on or about April 13, 2015.
On August 21,
1In
its Second Amended Complaint (Doc. #41) plaintiff contends
that coverage is available under either the 2014-15 policy or the
2015-16 policy, and the parties agree that the relevant terms and
conditions of the Policies are the same.
2The
Policies also agree to indemnify Equipmentfacts, but
indemnification is no longer an issue in this case. (Doc. #61, p.
3.)
- 2 -
2015, Claimants filed an Amended Complaint (the Underlying Amended
Complaint)
against
Equipmentfacts
in
the
Underlying
alleging negligent misrepresentation and conversion.
5.)
Action
(Doc. #60-
Equipmentfacts provided the Underlying Amended Complaint to
Beazley Insurance with a request that Beazley Insurance provide a
defense and indemnification pursuant to the Policies.
Insurance
declined
indemnification.
to
provide
Equipmentfacts
a
Beazley
defense
or
Beazley Insurance asserted that the allegations
of the Underlying Complaint did not trigger coverage and, even if
they did, coverage was barred by the Quality of Services Exclusion
in the Policies. 3
Equipmentfacts filed suit against Beazley Insurance in New
Jersey state court, which Beazley Insurance timely removed to
federal court in the District of New Jersey based upon diversity
jurisdiction.
The district court in the District of New Jersey
sua sponte transferred the case to the Middle District of Florida,
Fort
Myers
Division
pursuant
to
28
U.S.C.
§
1404(a).
Equipmentfacts, LLC v. Beazley Insurance Co., 2016 WL 1385292 (D.
N.J. 2016).
Complaint.
The operative pleading is now the Second Amended
(Doc. #41.)
The sole remaining issue is whether
Beazley Insurance had a duty to defend Equipmentfacts in the
3 The
Underlying Action is no longer pending, as a final
judgment was entered in favor of Equipmentfacts on August 23, 2016.
This declaratory judgment action is not moot because payment of
the defense costs incurred by the insured is still at issue.
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Underlying Action based upon the allegations in the Underlying
Amended Complaint.
(Doc. #61, pp. 1, 3.)
II.
A. Choice-of-Law Analysis
As an initial matter, the parties dispute whether Florida or
New
Jersey
Policies.
law
applies
to
the
Court’s
interpretation
of
the
Beazley Insurance asserts that New Jersey substantive
law applies.
Equipmentfacts favors Florida law, but argues that
the law is the same in both jurisdictions.
This case was originally filed in state court in New Jersey,
then removed to the District of New Jersey based upon diversity
jurisdiction.
In a diversity action, a federal court must apply
the substantive law of the forum state, which includes the choiceof-law principles of the forum state.
See Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Michel v. NYP Holdings,
Inc., 816 F.3d 686, 694 (11th Cir. 2016); Auto–Owners Ins. Co. v.
Stevens & Ricci Inc., 835 F.3d 388, 402 (3d Cir. 2016).
Because
the Policies do not contain a choice-of-law provision, the District
of New Jersey would have applied the choice-of-law rules of the
forum state (New Jersey) to determine which state’s substantive
law applied.
District
of
Id. at 403.
New
Jersey,
However, had the case remained in the
that
district
court
would
not
have
addressed the choice-of-law issue unless there was an actual
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conflict between the potentially applicable bodies of law.
On Air
Entm’t Corp. v. Nat’l Indem. Co., 210 F.3d 146, 149 (3d Cir. 2000).
The case was transferred from the District of New Jersey to
the Middle District of Florida pursuant to 28 U.S.C. § 1404(a).
The Middle District of Florida must apply the same law as would
the transferor court.
(1990).
Ferens v. John Deere Co., 494 U.S. 516, 519
Thus, this Court need not be concerned about the choice-
of-law issue unless there is an actual conflict in Florida and New
Jersey law.
In this case, there is not any material, actual
conflict.
B. Substantive Legal Principles
The Third Circuit Court of Appeals has had several occasions
to summarize relevant New Jersey law.
Under New Jersey law, the duty to defend is
broader than the duty to indemnify. The duty
to defend is triggered by the filing of a
complaint alleging a covered claim.
The
complaint should be laid alongside the policy
and a determination made as to whether, if the
allegations are sustained, the insurer will be
required to pay the resulting judgment, and in
reaching a conclusion, doubts should be
resolved in favor of the insured.
C.R. Bard, Inc. v. Liberty Mut. Ins. Co., 473 F. App’x 128, 134
(3d Cir. 2012) (internal citations omitted).
An insurer has a duty to defend if the
allegations in the complaint, on its face, are
encompassed by the risks insured against by
the policy.
Coverage is determined by the
nature of the claim against the insured, not
by how the underlying plaintiff chooses to
- 5 -
phrase the complaint. The duty to defend may
arise even if the underlying complaint is
meritless.
Insurance policies should be
given their plain and ordinary meaning, but
should be interpreted liberally in favor of
the insured and strictly against the insurer.
If a complaint is ambiguous it should be
interpreted in favor of the insured. When the
underlying complaint contains multiple causes
of action, the insurer has a duty to defend
until every covered claim is eliminated.
Wimberly Allison Tong & Goo, Inc. v. Travelers Prop. Cas. Co. of
Am.,
352
F.
App’x
642,
646–47
(3d
Cir.
2009).
See
also
Arcelormittal Plate, LLC v. Joule Tech. Servs., Inc., 558 F. App’x
205, 209 (3d Cir. 2014).
Under Florida law, “[i]t is well settled that an insurer’s
duty to defend its insured against a legal action arises when the
complaint alleges facts that fairly and potentially bring the suit
within policy coverage.
The duty to defend must be determined
from the allegations in the complaint.”
Jones v. Florida Ins.
Guar. Ass'n, Inc., 908 So. 2d 435, 442–43 (Fla. 2005) (citations
omitted).
This duty to defend exists “even if the allegations in
the complaint are factually incorrect or meritless.”
Id. at 443.
“If the complaint alleges facts partially within and partially
outside the coverage of the policy, the insurer is obligated to
defend the entire suit.”
Category 5 Mgmt. Grp. LLC v. Companion
Prop. & Cas. Ins. Co., 76 So. 3d 20, 23 (Fla. 1st DCA 2011).
Any
doubt as to the duty to defend is resolved in favor of the insured.
Id.
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III.
A. Pertinent Allegations of Underlying Action
Plaintiff does not seek a declaratory judgment as to the
original Complaint in the Underlying Action, which alleged claims
of fraud, breach of contract, unjust enrichment, and conversion.
(Doc. #60-4.)
Rather, plaintiff asserts that the Underlying
Amended Complaint in the Underlying Action triggered coverage
under the Policies.
(Doc. #41, ¶ 16.)
Additionally, plaintiff
does not argue that coverage was triggered by the conversion
claims, only the negligent misrepresentation claims.
The Underlying Amended Complaint against Equipmentfacts in
the Underlying Action asserted that Claimants were the highest
bidders for two bulldozers and a wheel loader in an auction of
heavy equipment conducted by Equipmentfacts, and that Claimants
wired payment directly to an account held by Allstar Auction
Company as directed by Equipmentfacts, but that the equipment was
never delivered.
The negligent misrepresentation counts further
asserted that: Equipmentfacts conducted an auction as defined by
Florida law; Equipmentfacts failed to require buyer’s funds be
deposited into an escrow or trust account pursuant to Florida law;
Equipmentfacts negligently misrepresented that its auction was
fast, reliable, secure, and surpassed the limitations of on-site
auctions; the statements that the auction was “reliable and secure”
was a material factor claimants relied upon in deciding to place
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bids with Equipmentfacts and to send funds upon the award of a bid
as directed by Equipmentfacts; Equipmentfacts’ statements that its
auction was reliable and secure were false since the auction did
not comply with Florida Statute and there were no safeguards in
place, such as an escrow or trust account, that made the bid
reliable and secure; had Equipmentfacts exercised reasonable care
it would have known its statements were false; Equipmentfacts
intended that parties who qualified to place bids would rely on
the statements regarding a reliable and secure auction; Claimants
reasonably relied on Equipmentfacts’ statement of security, and
made a bid in an auction, which was accepted; and Claimants
suffered loss as a result of Equipmentfacts’ misrepresentations.
B. The Beazley Insurance Policies Language - Duty to Defend
The Policies provide that Beazley Insurance had the following
duty to defend:
The Insurer shall have a right and duty to
defend, subject to the Limit of Liability,
exclusions and other terms and conditions of
this Policy, any Claim against the Insured
seeking Damages which are payable under the
terms of this Policy, even if any of the
allegations of the Claim are groundless, false
or fraudulent.
(Doc. #60-2, II.A) (emphasis in original).
A “Claim” is defined
to include “a demand received by any Insured for money or services,
including the service of suit. . . .”
(Doc. #60-2, VI.E.)
“Damages” is defined as “a monetary judgment, award or settlement.”
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(Doc. #60-2, VI.H.)
It is beyond dispute that the Underlying
Amended Complaint in the Underlying Action was a “claim” received
by the “insured” for “damages.”
The final requirement is that the claim against the insured
must seek damages “which are payable under the terms of this
Policy.”
The
Policies
provide
coverage
under
four
separate
insuring clauses, but plaintiff only relies upon one – Insuring
Clause Section D, paragraph 9.
(Docs. #61, p. 7; #66, p. 9.)
Section D is titled “Multimedia and Advertising Coverage,” and
provides that Beazley Insurance agreed:
To pay on behalf of any Insured:
Damages and Claims Expenses, in excess of the Each Claim
Deductible, which the Insured shall become legally
obligated to pay because of liability imposed by law or
Assumed Under Contract resulting from any Claim first made
against any Insured and reported in writing to the Insurer
during the Policy Period or Optional Extension Period (if
applicable) arising out of one or more of the following
acts committed on or after the Retroactive Date set forth
in Item 6 of the Declarations and before the end of the
Policy Period in the course of the Insured Organization’s
performance of Professional Services, Media Activities or
Technology Based Services:
. . .
9. negligence regarding the content of any
Media Communication, including harm caused
through any reliance or failure to rely upon
such content.
(Doc. #60-2.)
The following relevant definitions in the Policies
are applicable:
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“Media Activities” means Media Communications and/or the
gathering, collection or recording of Media Material for
inclusion in any Media Communication in the ordinary
course of the Insured Organizations’ business.
Media Communication” means the display, broadcast,
dissemination, distribution or release of Media Material
to the public by the Insured Organization.
“Media Material” means information in the form of words,
sounds, numbers, images, or graphics in electronic, print
or broadcast form, including Advertising, but does not
mean computer software.
(Id. at VI.J-L.)
Thus, Beazley Insurance has agreed to pay Claims
for Damages which Equipmentfacts became legally obligated to pay
because of liability imposed by law resulting from any Claim
arising out of negligence regarding the content of any display,
broadcast, dissemination, distribution or release of information
in
electronic,
print
or
broadcast
form
by
Equipmentfacts,
including harm caused through any reliance or failure to rely upon
such content, in the course of the Equipmentfacts’s performance of
Professional
Services,
Media
Activities
or
Technology
Based
Services.
Comparing this duty to defend with the Underlying Amended
Complaint readily leads to the conclusion that Beazley Insurance
owed Equipmentfacts a defense in the Underlying Action as of the
time of the filing of the Underlying Amended Complaint.
Under
Counts IV and V, Claimants in the Underlying Action alleged (1)
negligent
misrepresentation,
(2)
against
Equipmentfacts,
(3)
regarding the content, (4) of promotional materials for its auction
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services, (5) upon which claimants relied, (6) to their financial
detriment.
Beazley Insurance admits that the alleged negligence
“may trigger” Insuring Clause Section D, paragraph 9.
p. 16.)
(Doc. #60,
The Court easily finds that it does trigger Insuring
Clause D and the obligation to provide a defense in the Underlying
Action from the time of the filing of the Underlying Amended
Complaint.
C. The Beazley Insurance Policies Language - Exclusion
Even with a claim that triggers coverage under Insuring Clause
Section D, paragraph 9, Beazley Insurance need not provide coverage
if
the
Although
claim
falls
courts
within
should
one
of
narrowly
its
exclusion
construe
provisions.
exclusions
to
an
insurance policy, “exclusions are presumptively valid and will be
given effect if specific, plain, clear, prominent, and not contrary
to public policy.”
C.R. Bard, Inc., 473 F. App’x at 132.
An
insurer has no duty to defend if the allegations in the underlying
complaint show the applicability of a policy exclusion.
Essex
Ins. Co. v. Big Top of Tampa, Inc., 53 So. 3d 1220, 1223–24 (Fla.
2d DCA 2011); State Farm Fire and Cas. Co. v. Tippett, 864 So. 2d
31, 35 (Fla. 4th DCA 2003).
“Because they tend to limit or avoid
liability, exclusionary clauses are construed more strictly than
coverage clauses.”
Category 5 Mgmt. Grp., 76 So. 3d at 23.
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Beazley
Insurance
asserts
that
the
Quality
of
Services
Exclusion precludes a duty to defend in the Underlying Action.
This provision states as follows:
V. EXCLUSIONS
The coverage under this Insurance does not apply to
Damages or Claims Expenses in connection with or
resulting from any Claim:
. . .
G. For or arising out of or resulting from:
. . .
3. the failure of goods, products, or services to conform
with any represented quality of performance contained in
Advertising; . . .
(Doc.
#60-2,
V.G.3.)
The
Policies
define
“advertising”
as
“material which promotes the product, service or business of the
Insured
Organization
or
others.”
(Id.
at
VI.A.)
Beazley
Insurance asserts that the Underlying Action was a “Claim . . .
for or arising out of or resulting from the failure of . . .
services to conform with any represented quality of performance
contained in Advertising,” and thus is within this exclusion.
Thus, the issue is whether the Florida state law claims for
negligent misrepresentation contained in the Underlying Amended
Complaint are claims “for or arising out of or resulting from” the
failure of Equipmentfacts auction services to conform with a
represented quality of performance contained in its Advertising.
The answer seems clearly yes.
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“The term ‘arising out of’ is broader in meaning than the
term ‘caused by’ and means ‘originating from,’ ‘having its origin
in,’ ‘growing out of,’ ‘flowing from,’ ‘incident to’ or ‘having a
connection with.”
Taurus Holdings, Inc. v. U.S. Fidelity & Guar.
Co., 913 So. 2d 528, 539-40 (Fla. 2005) (quoting Hagen v. Aetna
Cas. & Sur. Co., 675 So. 2d 963, 965 (Fla. 4th DCA 1996). This
requires “some causal connection, or relationship but does not
require proximate cause.
Id. (quoting Race v. Nationwide Mut.
Fire Ins. Co., 542 So. 2d 347, 348 (Fla. 1989)).
See also
Flomerfelt v. Cardiello, 997 A. 2d 991, 1003 (N.J. Sup. Ct. 2010)
(recognizing that the court has interpreted the “arising out of”
language to mean “originating from,” “growing out of” or having a
“substantial nexus”); Leitao v. Damon G. Douglas Co., 301 N.J.
Super. 187, 193, 693 A.2d 1209 (N.J. Super. Ct. App. Div. 1997).
“To state a cause of action for negligent misrepresentation,
a plaintiff must show: ‘(1) the defendant made a misrepresentation
of material fact that he believed to be true but which was in fact
false; (2) the defendant was negligent in making the statement
because he should have known the representation was false; (3) the
defendant intended to induce the plaintiff to rely ... on the
misrepresentation; and (4) injury resulted to the plaintiff acting
in justifiable reliance upon the misrepresentation.”
Howard v.
Murray, 184 So. 3d 1155, 1168 n.23 (Fla. 1st DCA 2015) (citation
omitted).
The negligent misrepresentation counts alleged that
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Equipmentfacts made false statements about its services, i.e., its
auctions of heavy equipment.
Those false statements have origin
in the quality or performance of the auctions.
Specifically,
advertising by Equipmentfacts asserted that the auctions were safe
and reliable, which Claimants alleged were false statements.
The
basis for their allegation that these representations were false
was that Equipmentfacts failed to comply with applicable Florida
law regarding auctions, despite asserting that it was doing so.
Contrary to plaintiff’s argument (Doc. #66, p. 13), the negligent
misrepresentation counts did not assert that the harm suffered by
Claimants arose from the failure to have safeguards in place as
required
by
the
Florida
statutes.
The
harm
alleged
in
the
negligent misrepresentation counts arose from the false statements
in
its
advertising,
evidence
of
compliance with Florida statutes.
which
was
the
alleged
non-
The negligent misrepresentation
counts arise out of the alleged failure of the auction to conform
to the represented quality or performance.
Therefore, defendant’s
Motion for Summary Judgment is granted.
Accordingly, it is hereby
ORDERED AND ADJUDGED:
1.
Defendant’s Motion for Summary Judgment (Doc. #60) is
GRANTED.
2.
Plaintiff’s Motion for Summary Judgment (Doc. #61) is
DENIED.
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3.
It is hereby declared that Beazley Insurance Company,
Inc. did not owe a duty to defend Equipmentfacts, LLC in the matter
of Sham Zen Zuo and Machine & Tool Co. Ltd. v. Equipmentfacts, LLC
and Mike Miski d/b/a Allstar Auction Co., Case No. 15-CA-479.
4.
Judgment
is
entered
in
favor
of
Beazley
Insurance
Company, Inc. and against Equipmentfacts, LLC.
5.
The Clerk is directed to terminate all pending deadlines
and motions, enter judgment accordingly, and close the file.
DONE and ORDERED at Fort Myers, Florida, this
of January, 2017.
Copies:
Counsel of Record
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12th
day
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